India's $315 Billion IT Sector Is Heading Into Earnings Season With More Questions Than Answers

For most of the last two decades, Indian IT was the sector you didn't need to think too hard about. Consistent growth, sticky clients, strong cash flows, generous dividends, and a business model that seemed immune to disruption. Every quarter, TCS, Infosys, Wipro, HCLTech, and Tech Mahindra would file their results, beat estimates by a few basis points, and the cycle would repeat.

That era is over. And earnings season, starting April 9 with TCS, is about to tell us exactly how over it is.

What the Numbers Are Expected to Show

Seven brokerages are aligned on one thing: this is going to be another lacklustre quarter. Revenue for the top six IT firms — TCS, Infosys, HCLTech, Wipro, Tech Mahindra, and LTIMindtree — is expected to grow about 10.9% year-on-year in the March quarter, with net profit rising 10.3%.

Double-digit growth sounds respectable until you understand the asterisk attached to it.

The Indian rupee fell sharply during the March quarter, completing a 9.88% annual decline for FY26, the steepest drop in 14 years, and hitting record lows above ₹94 per dollar. Software services companies typically benefit because they bill in foreign currencies while incurring most costs in rupees, inflating profits when dollar revenues are converted back. In other words, a meaningful chunk of that 10.9% headline number isn't coming from winning more business or doing more work. It's coming from the exchange rate doing the heavy lifting.

Strip that out and the picture is considerably less flattering. On a constant currency basis, the top four IT firms are more likely to see revenue rise only 1.8% for the full year. That is not a growth story. That is a sector treading water.

The $315 billion sector, employing about 5.9 million people (NASSCOM projects ~5.95 million for FY26), last reported double-digit revenue growth in the March 2023 quarter. Since then, demand has softened as clients cut discretionary spending, deal cycles lengthened, and spending shifted towards cost optimisation and AI-led projects. Three years without double-digit constant currency growth. For an industry that built its entire valuation premium on consistent compounding, that is a long time.

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The Macro Headwinds Are Stacking Up

It would be easier to diagnose if this were just one problem. It isn't.

Uncertainties due to wars, weak discretionary spending, and concerns around artificial intelligence will keep weighing on client budgets. Jefferies put it plainly in their preview note: overall client budgets have not increased materially, and discretionary spending remains at bay. The escalating conflict in West Asia has added a fresh overhang, pushing up oil prices, stoking inflation concerns, and raising the risk of a broader global slowdown. The transmission mechanism from a Middle East conflict to an IT services firm in Chennai or Pune is longer than it looks, but it is real.

The Guidance Numbers Everyone Is Actually Watching

Quarterly results, in a sector with this much uncertainty, almost become secondary. What investors really want is forward guidance. What does FY27 look like?

Infosys and HCLTech are likely to provide annual revenue forecasts of 1.5%–4.5% and 3%–6% (for IT services), respectively. Those are not numbers that inspire confidence at premium multiples. But here is the counterintuitive part. HSBC analysts noted that even a modest revenue forecast could support stock prices, pointing out that valuations currently reflect only low-single-digit growth. The bar has been set low enough that simply clearing it might stabilise the stocks.

What will be most closely tracked is guidance from Infosys and HCLTech, along with large-deal momentum at TCS and management commentary on the broader macro environment.

TCS is expected to report a total contract value of USD 8–10 billion. That pipeline number matters because deal wins today translate to revenue recognition over the next 12–24 months. A strong TCV print can paper over a soft quarter.

The AI Question That Nobody Can Fully Answer

Here is where the story gets genuinely complicated, and where the stakes go far beyond a single earnings season.

Shares of IT companies are down 25% so far this year on investor worries that advanced AI tools launched by companies like Anthropic and Palantir could disrupt IT's traditional business models. The Nifty 50 is down approximately 10% over the same period. The IT index has underperformed even a falling broader market. That tells you something about how severe the sentiment shift has been.

The fear is structural. Generative AI could automate key services upstream in coding, testing, maintenance, and support, which have been the core revenue drivers for Indian IT for three decades. The traditional model is essentially selling human hours: thousands of engineers doing the kind of work that global enterprises need done but don't want to hire for locally. If AI tools can do a meaningful portion of that work, the economics of the model change fundamentally.

Motilal Oswal captured the dilemma precisely: while the fears around the impact due to AI are difficult to validate or falsify, the burden of proof now sits with IT companies. Re-rating depends on proof of surviving and thriving.

That line is worth sitting with. The burden of proof has shifted. For years, investors gave Indian IT the benefit of the doubt. The sector earned its premium through decades of execution. Now it needs to demonstrate, quarter by quarter, that the model still works in a world being reshaped by the very technology its clients are spending on.

To their credit, the large IT firms are not sitting still. Infosys has made AI a significant focus, with AI services now accounting for 5.5% of its Q3 FY26 quarterly revenue (~$275 million), with the company undertaking over 4,600 AI projects and collaborating with 90% of its top 200 clients on their AI journeys. TCS tied up with OpenAI, integrating ChatGPT Enterprise and Codex across its systems, while Infosys partnered with Anthropic to build AI agents for regulated industries. These are not just PR moves. They reflect a genuine strategic pivot toward becoming AI implementation partners for global enterprises rather than just labour arbitrage providers.

The bull case is real. Indian IT services could see an incremental AI-led total addressable market of USD 300–400 billion by 2030, according to a NASSCOM-McKinsey report cited by Infosys at its Investor AI Day in February 2026. If even a fraction of that materialises through IT services engagement, the sector's growth trajectory could reverse sharply. The question is timing, execution, and whether Indian IT firms can make that transition before revenue deflation in their core businesses catches up with them.

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The Valuation Reality

The Nifty IT Index currently trades at a price-to-earnings ratio of 17.8 times one-year forward earnings, around 16% below its 10-year average, but slightly above pre-COVID levels. That is not cheap on an absolute basis. But relative to where the index was trading before the selloff, it looks more reasonable. If the FY26–28 earnings growth projections materialise, current valuations could look attractive in hindsight. If AI-led revenue deflation accelerates faster than the new opportunity ramps up, the derating could continue.

What This Earnings Season Is Really About

The results starting April 9 will produce revenue numbers, margin figures, deal wins, and guidance ranges. All of that will matter in the short term. But underneath the numbers, earnings season is asking a simpler and harder question: Is this a cyclical slowdown that resolves as macro conditions improve and enterprise budgets loosen? Or is this the beginning of a structural transition that permanently alters the economics of Indian IT?

Indian IT has surprised before. The sector navigated Y2K panic, the dot-com bust, the 2008 financial crisis, and the cloud transition. Each time, the eulogies were written early. Each time, the industry found a way to evolve and expand. The argument from management teams is that AI is simply the next version of that story.

Maybe. But this time, the disruption is not coming from a macroeconomic shock that eventually passes. It is coming from technology that is getting cheaper, faster, and more capable every quarter. And the companies that build that technology are not Indian IT's clients. They are increasingly its competitors.

April is going to start answering which side of that argument is right.

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Stock markets are subject to risks. Please consult a SEBI-registered investment advisor before making any investment decisions.