Global uncertainty, a slowdown in client spending, and emerging “AI deflation” are weighing on the near-term outlook for the IT services industry, with analysts pencilling in softer growth for FY27.

The sector is expected to post muted revenue expansion of around 3–4 per cent in the near term, as productivity gains from artificial intelligence begin to compress traditional pricing models. Analysts estimate a 2–3 per cent AI-led revenue deflation in both FY27 and FY28, as early gains from generative AI reduce billable hours and weaken the headcount-led revenue structure before new AI-driven income streams scale up.

Macroeconomic risks are adding to the pressure. A prolonged US-Iran conflict could prompt central banks to keep rate cuts on hold for longer, curbing enterprise technology budgets — particularly in the financial services segment, the industry’s largest vertical.

Company-specific factors are also at play, with recent guidance from major IT firms signalling caution.

Infosys has guided for 1.5–3.5 per cent revenue growth in constant currency for FY27, lower than its earlier FY26 guidance of 3–3.5 per cent.

HCLTech has projected FY27 revenue growth of 1–4 per cent in constant currency, down from 4–4.5 per cent for FY26, citing market volatility, reduced discretionary spending, and expected client-specific ramp-downs.

Wipro has guided that Q1 FY27 IT services revenue could see a sequential decline of 2 per cent to flat growth in constant currency. Tata Consultancy Services (TCS) has also flagged sector-specific concerns linked to global geopolitical developments.

The cautious commentary has weighed on market sentiment. The Nifty IT index has declined 4 per cent over the past month and is down more than 20 per cent year-to-date.

C. Vijayakumar, MD and CEO of HCLTech, indicated at the company’s Q4FY26 earnings call that AI could have an industry-wide impact of 3–5 per cent, as it drives measurable pricing deflation across application development, infrastructure management and support services. Evolving geopolitical conditions limit visibility over the next 12 months.

Infosys CFO Jayesh Sanghrajka told analysts at the Q4FY26 earnings call that client ramp-downs amid a challenging macro environment have been factored into guidance, though the company could revisit its outlook if conditions improve.

TCS CEO K. Krithivasan said at the Q4FY26 earnings call that the direct impact of geopolitical tensions has so far been limited to West Asia and certain segments such as travel and transportation, but warned of broader implications if supply chain disruptions intensify.

Industry analysts point to a structural shift underway.

“The IT services sector’s softer guidance underscores a broader trend of cautious client spending and delayed discretionary technology investments amid global economic uncertainty. A significant headwind is the deflationary impact of artificial intelligence, which threatens traditional headcount-based revenue pools by driving 15-30 per cent productivity gains in application development and managed services. Additionally, providers are currently navigating a churn of limited-revenue engagements due to high abandonment rates for early generative artificial intelligence projects,” Shubham Rathore, principal analyst at Gartner, told The Telegraph.

Brokerages echoed similar concerns. Analysts at HDFC Securities said clients are prioritising cost optimisation and operational resilience over transformation, with AI-led productivity savings being passed on to customers, compressing core revenues.

Motilal Oswal analysts noted that Infosys’s guidance reflects increasing pressure on existing business, driven by both competitive intensity and AI-led pricing deflation, a trend likely to persist as efficiency gains are shared with clients.

Despite near-term headwinds, analysts believe companies that pivot toward outcome-based pricing models and higher-value consulting offerings will be better positioned to capture the next phase of growth.

Nasscom chairman Srikanth Velamakanni, however, feels AI will not be a threat to the tech industry, instead it will accelerate the growth and continue hiring people.