The AI-driven rally that powered Indian IT stocks over the past year may be losing momentum, according to HSBC Global Investment Research, with upcoming FY27 guidance from key companies expected to become the next major trigger for investor sentiment. In a recent note, HSBC said the 'AI narrative' that helped drive IT valuations is beginning to weaken due to a lack of large-scale real-world deployments capable of offsetting the decline in traditional software spending.
Instead, the brokerage expects investors to increasingly focus on realistic earnings guidance from major companies such as Infosys and HCLTech, which could set the tone for the sector in the coming financial year.
Without substantial new demand linked to AI deployments, the technology could end up cannibalising parts of traditional software spending rather than creating incremental revenue streams. As a result, investors are likely to shift their attention from AI optimism to company-level earnings visibility and demand trends.
1-Yr Returns - Infosys And HCLTech
FY27 Guidance Becomes Key Trigger
HSBC expects upcoming FY27 guidance announcements to play a crucial role in shaping sentiment toward Indian IT stocks. The brokerage estimates that Infosys may issue growth guidance in the range of 2.5% to 5%, while HCLTech could project 4.5% to 6.5% growth in constant currency terms.
While these ranges suggest a potential improvement from current growth trends, HSBC expects companies to move away from the traditional "beat-and-raise" style of guidance that has historically characterised the sector. Instead, management teams are likely to adopt a more conservative and realistic approach given the uncertain demand environment and evolving AI adoption cycle.
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Banking Demand Offers Some Support
Despite the cautious outlook, HSBC highlighted pockets of resilience within the sector, particularly in the banking, financial services and insurance (BFSI) segment.
Infosys has already indicated signs of improving demand in banking and energy verticals, which together account for a significant portion of its revenue. HCLTech, meanwhile, has emphasised the strength of its services mix and the role of cost optimisation deals in managing the impact of AI-led changes in enterprise technology spending.
Structural Drivers Remain Intact
HSBC said the broader investment thesis for Indian IT remains supported by structural forces such as enterprise cloud migration, legacy system modernisation and the gradual adoption of AI technologies.
Strong corporate earnings in the US, especially among large enterprises that form the core client base for Indian IT companies, could also provide incremental support for technology spending.
However, in the near term, the brokerage said sector performance will likely hinge on whether companies can deliver credible growth outlooks for FY27 - and whether AI-led productivity gains translate into meaningful revenue growth rather than margin improvements alone.
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