Research firm UnearthInsight forecasts that the top five IT companies will show quarter-over-quarter growth of 0.5–1 percentage point in the second quarter of fiscal year 27, which will not be the best performance compared to the April-June period.
Analysts note that leading Indian IT companies are likely to report moderate revenue increases and generally stable margins in July-September, as clients maintain tight control over discretionary budgets. The main focus is on the speed of converting strong leads into actual revenue and the degree of demand reduction for traditional services due to artificial intelligence.
Gaurav Vasu, CEO and founder of UnearthInsight, stated that 'the second quarter will not be better than the first, as we do not see a revival in client budgets or spending. Discretionary spending remains stalled amid geopolitical tensions, and decision-making cycles also remain lengthy.'
Gartner assesses this quarter as 'somewhat stronger' compared to the previous one, explaining that previously approved contracts are beginning to generate revenue. However, according to Gartner, market conditions remain largely unchanged, with cautious discretionary spending and a constant focus on performance results influencing purchasing decisions.
Gartner Senior Analyst Bishwajit Maiti noted that, based on current market trends, growth among leading IT service providers is expected to remain modest. Vasu added that while deals will remain strong, their conversion into revenue will take longer, and decision-making cycles, he predicts, will remain long for the next 12–18 months.
The Q2 earnings season will begin with Tata Consultancy Services (TCS) on October 8, followed by HCLTech on October 12, and Infosys will present its results on October 23.
Vasu does not expect major changes in the FY27 forecasts, although some companies may raise the upper bound by about 0.5 percent. UnearthInsight maintains its full-year growth forecast for leading firms at 3–4 percent, indicating that most of this growth will be driven by inorganic growth rather than increased demand. He also reported that during FY27, the technology services industry spent $3.6 billion on 14 mergers and acquisitions.
Regarding margins, Vasu warned that they will remain under pressure. Recent wage increases have been accounted for, and investments in AI platforms and partnerships must now be included in deals to close them. Furthermore, efficiency gains from AI are being passed on to clients. He emphasized that 'true margin support will come from selling applications and platforms, not just services.'
UnearthInsight expects a slight margin improvement for individual top-tier players such as TCS, Infosys, and HCLTech, while mid-tier firms will maintain current margins, absorbing M&A integration costs.
Gartner forecasts that margins will remain generally stable, with limited potential for expansion. The company notes that productivity gains from automation and improved resource utilization are offset by AI investments, wage inflation for in-demand skills, and customer demands for price reductions. Maiti stated that customer technology spending remains cautious, as organizations continue to prioritize initiatives that deliver measurable business results, cost optimization, and risk reduction.
He added that 'most organizations remain selective in their investment decisions, focusing on projects with clear ROI, productivity gains, and operational resilience. Demand continues to be stimulated by AI, cybersecurity, and modernization initiatives, while discretionary transformation programs remain subject to stricter budget controls and longer approval cycles. Consequently, spending is gradually improving, but the overall demand environment remains disciplined, not fully recovered.'
Vasu noted that the banking sector is under pressure, while retail and manufacturing are strained due to the lack of inflation reduction. He named the US as the weakest market. He suggested that Europe will grow through cost optimization deals, the Asia-Pacific region will grow faster, and the Middle East will slow down significantly due to the war.
Gartner sees the strongest demand in the BFSI, healthcare, manufacturing, and telecommunications sectors, while retail, oil, and gas show relatively weaker results. The company believes the US remains the strongest market, supported by investments in AI, cloud technologies, and digital transformation. Europe maintains resilience thanks to spending related to regulation, security, and sovereignty.
Regarding the impact of AI on overall revenue, Vasu reported that AI-driven revenue remained below 5 percent of the total industry volume. He added that the growing share of client budgets in the US and Europe is directed towards native AI platforms and startups. He also mentioned that software vendors like SAP and Oracle are selling more products with built-in AI, reducing the need for traditional services.
Gartner forecasts that generative and agentic AI are beginning to 'significantly reduce' demand for labor-based services, especially in managed services and service support functions. According to Gartner estimates, up to 50 percent of opportunities in traditional managed services will become difficult for existing providers by 2030.
Companies have started disclosing AI revenue data. In June, Infosys reported that AI-related revenue was 8.2 percent of total revenue, and TCS reported an annual AI revenue of $2.6 billion.
Vasu believes that mid-tier firms will continue to outperform larger companies, although their growth will also slow down. He noted that acquisitions by companies like Coforge and Persistent will impact growth. UnearthInsight expects a slight recovery in FY28, with growth around 6 percent.
