Indian IT services companies are expected to see top-line growth headwinds in the medium-term, stemming from Artificial Intelligence (AI)-led deflation, exacerbated by macro volatility, according to ICICI Securities.
The brokerage firm noted that its primary research suggests that AI-led productivity gains are materially compressing turnaround times and easing human effort across service lines.
IT companies even profess 50–60% productivity gains in certain areas over 3–5- years of deal tenure. With agentic AI adoption gathering pace, this trend has accentuated in the last 3–4 months, it noted.
ICICI Securities has refreshed its demand indicators post the Q1FY27 results, and continues to see revenue growth headwinds from AI-led deflation and the persisting macroeconomic volatility.
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It highlighted that the revenue growth in FY27 for majority of the large-cap IT companies could undershoot that in FY26, with three out of five companies cutting full-year guidance in the June 2026 quarter.
Further, the disconnect between deal TCV and revenue conversion continues and YoY deal TCV growth has slowed for 5 out of 10 companies under ICICI Securities' coverage in Q1FY27.
“If deal TCV growth slows further, there could be downside risk to FY28 revenue growth. Incremental technology budgets are shifting toward AI-native and cloud providers, reflected in sustained strong revenue growth across AI infrastructure, cloud and SaaS players,” ICICI Securities said.
Gartner data corroborates this trend, with share of IT Services estimated to reduce to 25% in CY26 versus average ~27– 28% historically.
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Meanwhile, bank technology spending grew 8% YoY in H1CY26, yet BFSI IT services revenue grew only 4% YoY, continuing to lag client tech budget growth, the brokerage firm highlighted.
“AI revenue for IT companies is growing at a healthy clip, but falls short of moving the overall growth needle given the offsetting decline in non-AI revenue,” it added.
IT Sector Stock Picks
ICICI Securities prefers select mid-cap stocks over large caps in the IT sector.
Among midcap IT stocks, it prefers Mphasis, Coforge and Persistent Systems, which have outpaced peers in improving revenue per employee and gross margins over FY24–TTM June 2026.
In the largecap segment, the brokerage firm picks Tech Mahindra, where revenue growth visibility is supported by sustained, healthy large deal wins.
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