Information technology stocks declined on Thursday, making the Nifty IT index the only sectoral gauge trading lower, as investors turned cautious ahead of Tata Consultancy Services' June-quarter earnings later in the day while digesting an HSBC report that questioned the sector's long-term AI growth narrative.
Shares of Infosys fell 1.83%, while HCL Technologies and Tata Consultancy Services declined 1.14% each. Tech Mahindra slipped 0.87%, Zensar Technologies lost 0.58% and Persistent Systems fell 0.34%. Wipro traded largely unchanged, while Oracle Financial Services Software and KPIT Technologies also edged lower.
The weakness came as investors awaited the start of the earnings season for the IT sector, with TCS scheduled to report its first-quarter results after market hours. At the same time, HSBC said artificial intelligence is becoming a structural headwind for Indian IT services, arguing that higher productivity from AI could reduce demand for traditional software services.
TCS Results In Focus
TCS is expected to report modest revenue growth for the June quarter, while margins and profit are likely to remain under pressure from the full-quarter impact of wage hikes and an uncertain demand environment.
Bloomberg estimates indicate revenue may rise 1% sequentially to Rs 71,743 crore from Rs 70,698 crore in the previous quarter.
Operating profit is projected to decline 3% to Rs 17,284 crore, while net profit is expected to fall 2% to Rs 13,485 crore. EBIT margin is estimated at 24.19%, compared with 25.27% in the March quarter.
Revenue in constant currency terms is expected to grow 3.58% from a year earlier, while employee attrition is projected to increase to 11.5%.
Analysts broadly expect growth to remain subdued as macroeconomic uncertainty and delayed client decision-making continue to weigh on discretionary technology spending.
HSBC Flags AI As A Structural Challenge
Alongside earnings concerns, investors also assessed an HSBC report that challenged the widely held view that Indian IT companies would be among the main beneficiaries of the global AI investment cycle.
"Any moderation in global AI investments and the AI narrative is not a positive read-across for Indian IT, in our view," HSBC said in the report.
The brokerage said AI is increasing productivity in software engineering work, including coding, testing, maintenance and migration, reducing the need for billable hours in traditional outsourcing services.
It also said AI is unlikely to generate enough new software engineering work to offset the pressure on existing businesses, adding that the deflationary impact on the industry's core services is likely to persist.
HSBC estimates that about 15% to 20% of industry revenue is already reflecting AI-related pricing pressure, while another 35% to 40% could face similar deflation by FY27, with the remaining impact likely to be reflected in FY28.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
