Despite three years of optimistic commentary on AI-led growth, major Indian IT firms face muted revenue forecasts for FY26-28. Investors are now shifting focus from management narratives to actual financial proof, as growth and profit margins continue to decline across the industry.
Detailed Coverage
The latest earnings season for the Indian IT services industry has highlighted a widening gap between management projections and market reality. While leaders from firms including TCS, Infosys, and Tech Mahindra have consistently pointed to Artificial Intelligence as a primary driver of future revenue, these claims have yet to be reflected in quarterly financial statements. For investors, this has created a trust deficit, as the promised AI transformation has not yet reversed the trend of slower business expansion.
Muted Growth Forecasts for FY26-28
Market expectations for the next two fiscal years suggest that the period of high-growth outsourcing may be behind the industry. According to consensus estimates, major players are projected to see muted compound annual growth rates through FY28. TCS is expected to grow at 1.8%, while Infosys is forecasted at 1.9%, HCLTech at 2.7%, Wipro at 0.2%, and Tech Mahindra at 3.8%. These figures indicate that the sector is struggling to capture a larger portion of global technology budgets, which have increasingly been diverted toward infrastructure and hardware providers rather than service-based firms.
Historical Margin and Profit Trends
A review of the industry's performance over the past decade shows a consistent decline in both margins and growth rates. During the FY18-23 period, the combined revenue growth of the five largest Indian IT firms slowed to 13% in rupee terms, down from 21% in the FY10-15 era. Profitability has faced similar pressures; TCS saw its EBIT margins slip from 26% to 23%, while Infosys experienced a steeper decline from 26% to 20%.
These margin contractions point to two significant challenges: intensified competition and reduced pricing power. Unlike hardware-centric companies such as Nvidia, which have seen EBIT margins climb toward 60% during the current AI transition, Indian IT firms have struggled to maintain their premium status. The reliance on currency depreciation to bolster dollar-term earnings also suggests that underlying organic growth remains weak.
Strategic Importance and Future Outlook
For investors, the key monitorable remains whether IT companies can convert their AI investments into tangible financial gains. Historically, successful industry transitions have been marked by rising margins and revenue expansion. Currently, the industry shows little appetite for the short-term margin sacrifices that might be required to capture next-generation technology contracts. Until management can demonstrate improved profitability and higher growth, these stocks may continue to attract value-oriented interest while failing to draw significant capital from growth-focused funds. Investors should continue to track actual revenue realization in future quarterly results rather than relying on qualitative AI-related commentary.