India’s IT services sector is expected to report another subdued quarter for the three months ended March, with brokerages pointing to weak sequential growth, geopolitical uncertainty stemming from the West Asia conflict, and rising pressure from AI-led pricing pressure as key concerns for FY27.
Analysts across major brokerages said Q4 is likely to remain muted despite some support from the rupee’s depreciation against the US dollar, which is expected to provide a revenue boost of 10 to 60 basis points.
Brokerage estimates suggest revenue growth for the quarter could range from a negative 0.5 to a 3% rise sequentially, with Tier-I companies expected to post growth in a narrow band. HDFC Securities estimates Tier-I growth between negative 1.1% and 0.9% quarter-on-quarter in constant currency terms, while Motilal Oswal Financial Services described the quarter as “uneventful”.
Margins are expected to remain stable or improve marginally, supported mainly by currency tailwinds. However, analysts cautioned that wage hikes, deal ramp-up costs and restructuring expenses continue to limit expansion.
The larger focus, however, is on management commentary for FY27, particularly on growth visibility, margins and the monetisation of artificial intelligence-led deals.
“The management commentary on demand outlook, client budgets, AI deflationary impact, and delays in decision making due to the war situation will be closely monitored,” analysts at HDFC Securities said in their preview note.
The ongoing conflict in West Asia has so far had a limited direct impact on Indian IT companies, but brokerages flagged potential risks in client spending and project timelines.
“The ongoing Middle East crisis poses a moderate short-term risk to Indian IT firms with exposure to regional energy and utility clients. Geopolitical uncertainty may delay discretionary spending and new projects, while raising operational concerns regarding infrastructure resilience, travel, and employee safety,” analysts at HDFC Institutional Research noted.
Analysts said the impact on existing programmes is expected to remain contained because most delivery operations continue to be managed offshore from India.
Still, some companies face direct exposure. ICICI Securities said Tech Mahindra, which has less than 5% exposure to the Middle East, is likely to report a 0.3% sequential contraction in revenue in constant currency, partly due to a $1–2 million hit linked to the conflict and weakness in its Comviva business.
L&T Technology Services is also expected to see growth trimmed after billing deferrals in the Gulf market.
At the same time, the sector is facing growing concerns over pricing pressure from generative AI-driven productivity programmes.
“GenAI-driven productivity programs are increasingly deflationary in nature,” Kotak Securities said, adding that productivity gains within existing contracts are beginning to outweigh near-term revenue creation.
This has shifted investor focus from quarterly earnings to how quickly companies can offset pricing pressure through new AI-led deal wins.