IT Sector Q4 Results: Lower Visibility and AI Impact Raise Growth Concerns

IT Sector Q4 Results Review: Persistent Concerns Amid Uncertain Demand Environment

The January-March quarter earnings of major Indian IT players have underscored the persisting concerns in the sector, including an uncertain demand environment in key markets, increased geopolitical risks, and firming pricing pressures. The structural change driven by artificial intelligence (AI) has further added to the sector's woes.

While the sector has delivered a mixed performance in Q4FY26, the hazy outlook heading into FY27 and cautious management tone are making investors worry, prompting them to sell IT stocks on the rise. The sector continues to suffer from weak discretionary spending with no remarkable hints of reversal.

Read also: India Records First Weekly Inflows in Seven Weeks Amid Ongoing Global Liquidity Support

For the week ended Friday, 24 April, the Nifty IT index crashed over 10%, while the equity barometer Nifty 50 declined about 2%. The sector's Q4 earnings were mixed and slightly on a weaker side for some players. However, the real concerns were the growth guidance of some of the IT majors for the financial year 2027.

HCL Tech has forecast revenue growth of 1-4% in constant currency terms, down from its previous year's initial guidance of 2–5%. Infosys also expects its revenue growth to moderate in the current financial year, expecting it to be in the range of 1.5%-3.5% in constant currency. Its revenue growth guidance for FY26 was 3-3.5% in constant currency. However, Infosys has maintained its operating margin growth guidance in 20%-22% range for FY27.

Wipro has projected IT services revenue of $2,597-$2,651 million, suggesting a sequential growth rate of -2% to 0% in constant currency terms, for Q1FY27. The numbers of TCS were healthy, and its management expects international revenue growth to be higher in FY27 versus FY26, aided by a strong pipeline and recent wins.

Experts point out that the IT services sector continues to face challenges due to curtailed client spending, with a clear preference for cost-optimisation engagements. Demand is largely driven by cost take-outs and consolidation, although momentum is gradually building in AI-led initiatives, particularly in areas such as productivity enhancement, automation, and platform-driven modernisation.

Read also: Navigating Unpredictable Markets: A Guide to Intraday Trading Strategies

Rising AI adoption is improving productivity but also prompting clients to demand lower pricing, resulting in an estimated annual revenue deflation of 3 to 3.5%. At the same time, IT budgets are under pressure, with a growing share of spending being redirected towards cloud service providers, AI infrastructure, and cybersecurity investments, leaving limited allocations for traditional IT services.

Despite these near-term challenges, some experts remain positive about the sector from a long-term perspective. Himanshu Gupta, Head of Research – Retail Broking (AVP) at Jainam Broking, pointed out that TCS leads in margins and deal pipeline, signaling resilience and AI traction, while Infosys shows balanced growth but muted outlook. However, for the short term, some experts suggest staying cautious about the sector.

According to Rajesh Singla, CEO and Fund Manager at Alpha AMC, as AI is changing the nature of demand for the sector, investors should focus on companies that are investing in AI capabilities, have strong deal pipelines, and are moving up the value chain. "The IT sector is in the middle of a shift, not a slowdown. AI is changing the nature of demand. Automation may reduce some traditional services, but it is also creating new opportunities in areas like data, cloud, and digital transformation. So this is no longer a sector call; it’s a company-specific call," Singla said.