Indian IT companies are set to report another quarter of muted earnings growth despite seasonal tailwinds, as enterprises redirect technology budgets toward artificial intelligence (AI) and Global Capability Centres (GCCs), according to a Systematix Research report. The report highlights that addressable tech spending remains softer year-on-year, with tier-one IT firms expected to deliver annual revenue growth between -1 per cent and 5 per cent over the next few years, constrained by AI-led pricing pressure, weak discretionary demand, and macroeconomic uncertainty.
Key Findings on Revenue and Profit Growth
The report states that "IT services companies are expected to report another quarter of muted growth despite seasonal strength," adding that net profit growth will likely follow the same trend due to hedging strategies against currency fluctuations at some firms. Among major players, Infosys is expected to raise the lower end of its FY27 revenue growth guidance to 2.5-3.5 per cent, including contributions from acquisitions. HCL Technologies is likely to maintain its existing guidance, while Wipro is expected to guide for -1.5 per cent to 0.5 per cent constant currency revenue growth in Q2 FY27.
Quarterly Performance and Deal Wins
Systematix expects large IT companies to post constant currency revenue growth ranging from -1.8 per cent to 1.1 per cent quarter-on-quarter in the June quarter. Mid-tier firms, led by Persistent Systems and Mphasis, are likely to outperform their larger counterparts. Deal wins are expected to remain broadly stable, offering little near-term relief.
Margins Under Pressure
Profitability is also expected to remain under pressure. The brokerage estimates that margins for large IT companies could contract by 10 to 100 basis points quarter-on-quarter due to wage revisions, weak operating leverage, investments in AI capabilities, restructuring costs, higher amortisation expenses, and cross-currency headwinds. Systematix noted that it does not expect any meaningful currency tailwinds during the quarter.
Valuation Correction and Outlook
Despite the weak near-term outlook, the sharp correction in IT stocks has improved valuations. The Nifty IT index has declined approximately 31 per cent over the past year, bringing valuation multiples to historically attractive levels. Companies continue to generate healthy cash flows and maintain strong payout ratios, which may provide some support for investors.
