The Q4FY26 results of major Indian IT players reveal a mixed bag of performance amid rising AI influence and uncertain market conditions. For the week ended Friday, 24 April, the Nifty IT index crashed over 10%, while the equity barometer Nifty 50 declined about 2%.

IT sector Q4 results review: From lower growth visibility to AI impact- Is IT a sector to avoid?

IT sector Q4 results review: The January-March quarter earnings of major Indian IT players have underscored the persisting concerns- uncertain demand environment in key markets amid increased geopolitical risks, firming pricing pressures, and the artificial intelligence (AI) driving a structural change in the sector.

While the sector has so far delivered a mixed performance in Q4FY26, the hazy outlook heading into FY27 and cautious management tone, because of extended deal cycles, phased investment and delayed decision-making, are making investors worries, prompting them to sell IT stocks on rise. The sector continues to suffer from weak discretionary spending with no remarkable hints of reversal.

For the week ended Friday, 24 April, the Nifty IT index crashed over 10%, while the equity barometer Nifty 50 declined about 2%.

IT sector Q4 earnings: A mixed show

The numbers were mixed and slightly on a weaker side for some players. However, the real concerns was the growth guidance of some of the IT majors for the financial year 2027.

HCL Tech has forecast revenue growth of 1-4% in constant currency terms, down from its previous year's initial guidance of 2–5%.

Infosys also expects its revenue growth to moderate in the current financial year, expecting it to be in the range of 1.5%-3.5% in constant currency. Its revenue growth guidance for FY26 was 3-3.5% in constant currency. However, Infosys has maintained its operating margin growth guidance in 20%-22% range for FY27.

Wipro has projected IT services revenue of $2,597-$2,651 million, suggesting a sequential growth rate of -2% to 0% in constant currency terms, for Q1FY27.

The numbers of TCS were healthy and its management expects international revenue growth to be higher in FY27 versus FY26, aided by a strong pipeline and recent wins.

"While discretionary expenditure is still low, there is a noticeable shift toward cost-efficiency deals. AI-led prospects are also growing, although near-term monetisation is slow and accompanied by pressure on prices," said Ravi Singh, Chief Research Officer (Research) at Master Capital Services.

"Overall, the IT sector appears to be in a phase of consolidation, whereby margins are being maintained but growth visibility remains low, meaning that there will likely be a significant delay before seeing any sort of real recovery," said Singh.

Is IT a sector to avoid?

Experts point out that the IT services sector continues facing challenges due to curtailed client spending, with a clear preference for cost‑optimisation engagements.

"Demand is largely driven by cost take‑outs and consolidation, although momentum is gradually building in AI‑led initiatives, particularly in areas such as productivity enhancement, automation, and platform‑driven modernisation," Sumit Pokharna, VP of fundamental research at Kotak Securities, noted.

Pokharna highlighted that the current slowdown in the sector has now extended into its fourth year, spanning FY24 to FY27, and reflects a set of structural challenges facing the industry.

"Rising AI adoption is improving productivity but also prompting clients to demand lower pricing, resulting in an estimated annual revenue deflation of 3 to 3.5%. At the same time, IT budgets are under pressure, with a growing share of spending being redirected towards cloud service providers, AI infrastructure, and cybersecurity investments, leaving limited allocations for traditional IT services," Pokharna observed.

Pokharna further underscored that the operating environment remains disrupted, as clients continue to reassess vendor relationships by changing service providers, bringing certain work in‑house, and renegotiating existing contracts to manage costs more tightly.

Despite these near‑term challenges, Pokharna is positive about the setor from a long‑term perspective.

"We remain positive on TCS, Infosys, and Tech Mahindra for the long term, given their scale, execution capabilities, and positioning to benefit from evolving technology demand," said Pokharna.

However, for the short term, some experts suggest staying cautious about the sector.

Himanshu Gupta, Head of Research – Retail Broking (AVP) at Jainam Broking, pointed out that the Q4FY26 results showed that TCS leads in margins and deal pipeline, signaling resilience and AI traction, while Infosys shows balanced growth but muted outlook. HCL lags on margins and sequential declines, with soft guidance raising concerns over discretionary spending exposure.

"All face FY27 headwinds, but TCS's client metrics and cash generation provide a stronger buffer. We remain underweight on all these large cap IT stocks and believe that this sector is not only likely to witness a further price correction but a time correction where the investors might not be able to get any meaningful returns over next 2-3 quarters," said Gupta.

According to Rajesh Singla, CEO and Fund Manager at Alpha AMC, as AI is changing the nature of demand for the sector, investors should focus on companies that are investing in AI capabilities, have strong deal pipelines, and are moving up the value chain.

"The IT sector is in the middle of a shift, not a slowdown. AI is changing the nature of demand. Automation may reduce some traditional services, but it is also creating new opportunities in areas like data, cloud, and digital transformation. So this is no longer a sector call; it’s a company-specific call," Singla told Mint.

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