IT Sector – Indian Technology Companies Face Soft Start to FY27

IT Sector – India’s information technology industry is expected to begin FY27 on a restrained note, with companies likely to report limited revenue growth in the April-June quarter. A report by Motilal Oswal said the broader demand environment remains weak, and the slowdown could continue into the following quarter as well.

Global uncertainty weighs on technology budgets

The brokerage said uncertainty in major economies, geopolitical risks and the rapid evolution of artificial intelligence are influencing how global companies plan their technology budgets. Many clients are delaying non-essential projects and taking longer to approve new spending, particularly in discretionary areas such as digital transformation, consulting and software upgrades.

This cautious approach is likely to keep demand muted for Indian IT service providers during the first half of the financial year. While companies may continue to win contracts, the pace at which these deals convert into revenue could remain slow.

First-half performance may trail annual targets

According to the report, the first six months of FY27 are currently progressing below the pace required for companies to meet the higher end of their annual revenue guidance. This could make it difficult for firms to close the gap in the second half of the year unless client spending improves meaningfully.

The brokerage expects management commentary during the upcoming earnings season to remain measured. Most IT companies are likely to indicate that demand visibility is still limited, with only modest quarter-on-quarter growth expected across the sector in the first quarter.

Weakness may continue into the September quarter

The subdued beginning to FY27 may not be limited to one quarter. The report said the softness seen in the April-June period could extend into the July-September quarter, mainly because global clients are continuing to control discretionary technology expenditure.

Large enterprises are reportedly focusing on cost efficiency and productivity gains rather than committing aggressively to new technology programmes. This trend is expected to affect revenue growth for companies that depend heavily on project-based work and consulting assignments.

Margins likely to show mixed performance

Profitability is expected to vary across the IT sector. Some companies may report a small improvement in margins due to better utilisation, cost control measures and operating leverage. However, these gains may not be uniform across all firms.

Several companies could face pressure from annual salary revisions, expenses related to the ramp-up of newly won deals and continued spending on artificial intelligence capabilities. Investments in AI platforms, talent and delivery systems are likely to remain necessary as clients increasingly seek automation and productivity-led solutions.

The report also noted that cross-currency movements may create a modest impact on margins, with companies expected to face a headwind of around 20 to 50 basis points.

Guidance outlook may become more conservative

Given the slower demand recovery, companies may reconsider the upper end of their revenue guidance during the quarter. The report said management teams could adopt a more cautious stance if the current pace of client spending continues.

Investors will closely watch whether companies retain their full-year projections or narrow their guidance ranges. Any revision could reflect the continued pressure on demand across key markets, including North America and Europe.

Valuation recovery depends on demand improvement

Although valuations of Indian IT stocks have declined substantially in recent months, the report said a lasting recovery will require stronger signs of improvement in business conditions. Investors are likely to look for stabilisation in revenue growth, better demand visibility and evidence that artificial intelligence opportunities are creating new revenue streams.

The sector may see renewed investor confidence only when companies can show that AI-led services are helping offset the productivity pressure and slower spending currently affecting traditional technology outsourcing.