S&P Global Ratings projects Indian IT revenue growth will dip to 2-4% in FY27-FY28 due to AI-led deflation and pricing pressures. While major firms hold strong cash reserves, the transition to outcome-based contracts and competition from AI-native enterprises may challenge future profit margins.
The Indian information technology (IT) services sector is bracing for a period of slower expansion, according to a recent assessment by S&P Global Ratings. The report suggests that the rapid integration of artificial intelligence across industries is creating deflationary pressure, which is likely to weigh on revenue growth for major players over the next three years.
Impact on Growth Projections
Industry growth, which has hovered in the 4-6% range for fiscal year 2026, is expected to moderate further. S&P Global Ratings anticipates growth will settle in the 2-4% range for fiscal years 2027 and 2028. This shift is primarily driven by the changing nature of IT spending, where AI-led automation is reducing the volume of traditional tasks that have historically fueled sector revenue.
Large-cap companies, including Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro, are expected to remain more resilient than smaller peers due to their substantial scale and established client relationships. These firms possess significant cash reserves, which allow them to fund the necessary capital spending to build internal AI capabilities and maintain competitive positioning.
Evolving Competitive Dynamics and Margins
Beyond AI, the sector is seeing a change in how clients pay for services. There is a growing preference for fixed-price, outcome-based contracts, which shift the risk from the client to the IT firm. This transition can put pressure on profit margins if companies cannot manage their internal costs effectively. Simultaneously, new AI-native enterprises are entering the market, targeting mid-size clients and creating additional competition for established players.
Individual firm strategies vary in response to these pressures. Infosys is expected to maintain a steady market position, supported by its strong presence in the financial services sector. HCL Technologies is leveraging its engineering and research capabilities to capture AI-specific deals while focusing on maintaining high utilization of its workforce to protect margins. Wipro, meanwhile, continues to focus on its delivery strengths, though the company faces ongoing challenges related to its talent turnover and efficiency metrics compared to industry leaders.
Strategic Shifts Toward Acquisitions
As organic growth slows, IT companies may look to inorganic routes to boost their revenue. While larger players have historically focused on small, capability-based acquisitions, there is an expectation that they may shift toward larger deals to expand their revenue base more rapidly. Some mid-tier firms, such as Coforge and Persistent Systems, are already pursuing more aggressive acquisition strategies to gain market share in a tightening environment. For investors, the key monitorables will be the actual revenue growth numbers in the coming quarters, the success of AI-led initiatives in sustaining margins, and the valuation and integration outcomes of potential future acquisitions.