The Indian IT sector is experiencing a period of subdued growth, with industry guidance and recent results indicating a muted outlook for the current fiscal year (FY26). However, a recovery is possible in the next fiscal year (FY27) due to a predicted increase in demand from key export markets and the adoption of new technologies, particularly artificial intelligence (AI). According to HSBC Global Research, while near-term discretionary spending among clients remains weak, there are signs of acceleration in the next fiscal year, driven by the adoption of AI among enterprises.
The Indian IT sector has faced challenges related to global macroeconomic uncertainty, client cost optimization, and delayed decision-making. Despite these challenges, major Indian IT firms such as TCS, Infosys, and HCLTech have reported healthy large deal bookings and strong pipelines in the first quarter of FY26. However, actual revenue growth guidance remains restrained at 1-5% for the year.
Industry analysis highlights AI as the central driver of the next growth cycle for Indian IT services. Management commentary from leading Indian and global IT firms suggests that most client AI projects to date have focused on productivity improvements but are increasingly shifting towards driving business growth. Enterprise-scale AI adoption is anticipated to ramp up in FY27, providing a significant new opportunity for Indian IT providers to deliver transformation projects and managed services.
Accenture, which has a substantial chunk of employees in India, nearly doubled Gen AI bookings to $5.9 billion in FY25. TCS reported a robust Q1FY26 TCV of $9.4 billion with a strong deal pipeline across verticals and geographies. Infosys reported strong Q1FY26 bookings with $3.8 billion in large deals, including multiple vendor consolidation deals worth over $1 billion. Wipro reported strong bookings of $5 billion Total Contract Value (TCV) with $2.7 billion large deals, driven by vendor consolidation and AI investments.
Despite a challenging environment in the short term, sector commentary suggests a modest recovery is possible in FY27 as macroeconomic conditions stabilize in the US and Europe. The anticipated acceleration in demand for enterprise-scale digital transformation and AI-led projects could drive a 200-300 basis points improvement in revenue growth for Indian IT services companies. Overall, while the near-term outlook remains subdued, the Indian IT sector is poised for growth in the next fiscal year, driven by the adoption of AI and digital transformation.