Rupee weakness offers cushion to margins even as AI-led budget reallocation and cautious enterprise spending weigh on growth; Infosys and Tech Mahindra tipped to lead sequential gains among Tier-1 players

Business Fortnight Bureau

India’s information technology services sector is bracing for a subdued opening to FY27, with brokerage house Emkay Global Financial Services flagging weak discretionary spending, slower client decision-making and a still-evolving AI narrative as the dominant themes for the June quarter (1QFY27), even as a handful of mid-cap companies continue to outpace the pack.

In its latest sector report, Emkay said Tier-1 IT companies are likely to report constant-currency (CC) revenue growth ranging from a decline of 1.2 percent to a rise of 2.2 percent for the quarter, while reported US-dollar revenue growth would be trimmed further by 10-30 basis points due to cross-currency headwinds. Among the large-cap pack, Infosys — aided by contributions from its recent acquisitions — and Tech Mahindra are expected to lead sequential growth.

The picture is somewhat brighter among mid-sized IT firms. Hexaware, Persistent Systems, Mphasis, eClerx, Firstsource Solutions and Coforge (the latter boosted by its Encora acquisition) are expected to post the strongest revenue growth within the Tier-2 cohort, while the remaining mid-caps are likely to see relatively muted numbers. Coforge, in particular, stands out sharply: Emkay pegs its constant-currency revenue growth at 22.4 percent quarter-on-quarter, largely on account of the Encora integration.

Rupee Depreciation Turns Out to Be a Silver Lining

One consistent bright spot in an otherwise cautious outlook is the currency. The Indian rupee has weakened by roughly 5 percent against the US dollar over the past six months, and Emkay expects this depreciation to act as a near-term tailwind for earnings, helping support consensus estimates for CY26 and FY27 even as revenue growth faces multiple headwinds — from AI-driven reallocation of client budgets to shifting pricing and deal structures.

On margins, the brokerage expects a mixed bag for the quarter, shaped by wage-hike cycles at companies such as TCS, Wipro, LTIMindtree and eClerx, large-deal ramp-up costs, business seasonality and the effects of recent M&A activity. Most Tier-1 companies — with the exception of TCS and Wipro — are expected to log sequential margin expansion. Mid-cap performance is likely to be more volatile, swinging between a 100-basis-point contraction and a 40-basis-point expansion quarter-on-quarter. Birlasoft is flagged as an outlier, with margins seen falling by a steep 310 basis points due to the absence of one-off gains that had boosted the previous quarter.

Net hiring across the sector is expected to remain muted, reflecting the industry’s continued caution on headcount amid rising productivity gains from AI-assisted delivery.

Structural Shift, Not Just a Cyclical Dip

Emkay’s analysts argue that the softness is not merely cyclical. The report describes a “multi-layered demand reset” in the Indian IT services industry, driven jointly by near-term caution in enterprise spending and a deeper structural shift in how technology is being adopted. While artificial intelligence adoption continues to accelerate, its immediate impact is seen as productivity-enhancing rather than revenue-expanding — a dynamic that is compressing pricing and forcing a re-basing of traditional service constructs. Combined with longer sales cycles and cautious client behaviour, this is limiting how much of the deal pipeline is actually converting into billed revenue. Emkay expects industry growth to stay below long-term historical averages until AI-led programmes scale up meaningfully and macro visibility improves.

Verticals are showing a divided trend: BFSI (banking, financial services and insurance) continues to post healthy — if moderating — growth, while manufacturing, especially the auto sector, remains weak. Engineering, research and development (ER&D) players continue to face pressure from auto-sector weakness, though pockets of the industrial segment are showing resilience. Growth across other verticals such as communication, hi-tech, retail and healthcare remains mixed.

Big Deals and Strategic Partnerships Continue to Flow

Despite the cautious growth backdrop, deal-making activity has been far from quiet. The quarter saw several large wins, including Persistent Systems securing a $650-million, 6.5-year engagement with a US-based global technology company; LTIMindtree’s $55-60 million, five-year partnership tied to its Randstad acquisition; Wipro’s landmark deal with Olam Group, valued at more than $1 billion over eight years; and TCS signing strategic partnerships with Canada Life, Siemens Energy and Marks & Spencer, among others.

Emkay notes that the nature of these announcements signals a broader shift — enterprises are increasingly moving away from discrete, project-based outsourcing contracts toward long-term, strategic technology partnerships that span multiple towers of work.

M&A Emerges as the New Growth Lever

Mergers and acquisitions have become an increasingly central strategy for Indian IT companies as organic growth moderates. Emkay highlights several transformational deals struck during the quarter:

• Persistent Systems – Nagarro (announced June 2026): A move to strengthen Persistent’s European footprint and AI-led engineering capabilities, expanding its addressable market to over $1.4 trillion.
• LTIMindtree – Randstad’s European and Australian IT services business (May 2026): Adds roughly $500 million in annualised revenue and nearly 2,900 billable employees, along with a five-year IT services deal to transform Randstad’s India Global Capability Centre.
• Cyient – Tao Digital (May 2026, $218 million, 100% stake): Aimed at strengthening AI-native data and digital engineering capabilities and accelerating Cyient’s shift toward larger, annuity-style contracts.
• Hexaware – Consulting Professionals Services (CPS) (May 2026): Consolidates client spend with an existing FTSE-100 client.
• Wipro – Mindsprint (April 2026, $375 million): Anchors the company’s mega Olam Group deal and builds fresh domain capability in food, agribusiness and commodity trading.
• Wipro – Alpha Net Consulting (April 2026, $70.8 million, 100% stake): A targeted acquisition of in-flight client contracts and delivery teams in North America.
• Tech Mahindra – Alluri Technologies (Avant) (April 2026, 85% stake, CAD 28 million): Strengthens BFSI capabilities in North America, particularly in payments modernisation and wealth management — notably, the first deal under new CEO Mohit Joshi.
• Mphasis – Theory and Practice (TAP) (April 2026): Adds decision-intelligence and causal-modelling capabilities to Mphasis’s NeoIP platform, pushing the company’s AI offering toward “outcome-driven, agentic AI.”

Emkay believes the sector is entering a new phase of consolidation — one where M&A is no longer just about plugging capability gaps but is being deliberately used to reshape geographic exposure, vertical mix and AI-engineering depth at a pace that would be difficult to replicate organically.

Company-Specific Outlook: Infosys, HCLTech Guidance in Focus

For Infosys, Emkay expects the company to revise its FY27 constant-currency revenue growth guidance upward to a range of 2.0-4.0 percent year-on-year (from an earlier 1.5-3.5 percent), aided by contributions from its Optimum acquisition, while retaining an EBIT margin (EBITM) guidance band of 20-22 percent.

HCLTech is expected to hold on to its existing revenue growth guidance of 1-4 percent in constant currency, along with an EBITM guidance range of 17.5-18.5 percent.

Wipro is projected to guide for a range of -1 percent to 1 percent revenue growth for the September quarter (2QFY27).

Valuations Reset Lower Amid Sector Underperformance

The NIFTY IT index has significantly underperformed the broader NIFTY 50, lagging by approximately 16 percent over three months and 22 percent over six months — a reflection of growing investor concern over slowing growth, the still-uncertain long-term impact of AI on the traditional IT services business model, and questions about the sustainability of legacy delivery structures.

In response, Emkay has trimmed its target valuation multiples for Tier-1 companies by roughly 10 percent to reflect these growth headwinds. Specifically, the target P/E multiples for Infosys, TCS, HCLTech and Tech Mahindra have been lowered to 16x, Wipro to 14x, and LTIMindtree to 18x. Coforge is a notable exception, with its target multiple raised to 24x, reflecting what Emkay describes as “continued strong execution and steady delivery,” particularly following the Encora acquisition.

Despite the multiple cuts, Emkay has retained its ratings across its entire coverage universe. Its current rating and target price snapshot includes:

Source: Company data, Emkay Research

Emkay’s Pecking Order: Mid-Caps Preferred

Summing up its stance, Emkay says it continues to prefer mid-cap IT stocks over large-caps, citing better revenue growth visibility. Among large-caps, the brokerage’s preference order is Infosys, LTIMindtree, TCS, HCLTech, Tech Mahindra and Wipro. Within the mid-cap space, its top picks are Coforge, Hexaware, Mphasis and Persistent Systems.

Key Monitorables for the Quarter

Emkay has flagged ten factors that investors and analysts should track closely through the earnings season: FY27 revenue and margin guidance and whether growth is front-loaded or back-loaded in the year; management commentary on CY26 IT spending budgets; the balance between incremental AI spending and reallocation of existing budgets; deal intake and pipeline strength; the pace of decision-making and instances of project deferment or cancellation; demand trends across key verticals including BFSI, retail, manufacturing, healthcare and hi-tech; evolving pricing and commercial deal structures; shifts in talent strategy and hiring plans as AI reshapes skill requirements; enterprise appetite to actually adopt and deploy AI-based solutions at scale; and management’s evolving perspective on “human-plus-agent” led service delivery models.

With large-cap growth expected to stay muted through the first half of the fiscal year, the coming earnings season — starting with TCS on July 9, followed by HCLTech, Infosys and other major players later in July — will be closely watched for early signs of whether the sector’s AI-driven transition is beginning to translate into fresh revenue streams, or whether the current period of pricing pressure and cautious enterprise spending has further to run.

Data and estimates cited in this report are sourced from Emkay Global Financial Services’ “Information Technology — 1QFY27 Preview” sector report, dated July 1, 2026. Figures pertaining to individual companies represent Emkay’s estimates and are subject to change upon actual quarterly results.