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We expect IT Services companies to commence FY27 on a subdued note, owing to weak discretionary spending, slower decision making amid persistent macro/geopolitical uncertainties and rising client expectations for AI-led efficiency gains in cost optimization, and vendor consolidation deals. In addition, the evolving AI-led tech landscape is weighing on the decision-making process, influencing enterprise spending and investment priorities. Against this backdrop, Tier-1 companies are likely to continue facing growth challenges, with INFO (aided by inorganic contributions) and TECHM expected to lead sequential growth. Within the tier-2 pack, HEXT, PSYS, MPHL, ECLX, FSOL, and COFORGE (due to M&A) would lead on revenue growth, while the rest are likely to post muted growth. EBITM performance of our coverage companies is expected to be a mixed bag, contingent on wage-hike cycles, large-deal ramp-up, businessrelated seasonality, and M&A. The recent depreciation in the rupee (~5% in past 6M) acts as a near-term earnings tailwind, lending support to CY26/FY27 consensus estimates and mitigating continued revenue growth challenges emanating from multiple fronts, AI-driven budget reallocation, and shifting pricing/deal constructs. The NIFTY IT Index has underperformed the broader markets by ~16%/22% over 3M/6M, respectively, reflecting concerns around slowing growth, the evolving AI landscape, and the long-term sustainability of traditional IT Services business models. We lower target multiples for the Tier-1 cohort by ~10%, to account for growth headwinds, while retaining ratings across coverage companies (more details on page 5).

Softness expected in large caps; select mid-caps to continue delivering

IT Services firms are likely to begin FY27 on a softer footing, with continued caution around discretionary spending, slower decision-making, and tighter project-level ROI scrutiny. In addition, continued macro uncertainties are leading to prolonged decision-making and delays in deal closures, weighing on near-term growth. Cross currency is expected to have a marginal impact on reported USD revenue growth in 1Q. Tier-1 companies are expected to post CC revenue growth of -1.2% to 2.2%, while reported USD revenue growth would be pulled back by 10-30bps, given cross-currency headwinds. Tier-2 companies may see CC revenue growth of -0.5% to 4.3% (barring COFORGE at 22.4%, given the Encora contribution), with headwinds of 10-60bps on reported USD revenue. Among verticals, BFSI continues to show healthy growth trends, though some moderation is visible, while Manufacturing (especially Auto) remains soft. Growth trends across non-BFSI verticals, including Communication, Hi-tech, Retail, and Healthcare, remain mixed. ER&D players continue to face pressure due to weakness in Auto, though select segments of Industrial show some resilience. For FY27, we expect INFO to revise its CC revenue growth guidance to 2.0–4.0% YoY (factoring in Optimum acquisition; earlier 1.5-3.5%) with EBITM guidance of 20-22%. HCLT is likely to retain its revenue growth guidance of 1-4% CC and EBITM guidance of 17.5-18.5%. We expect WPRO to guide for -1% to 1% growth for 2QFY27E.

Rupee depreciation to support margins

We expect margin performance of our coverage companies to be a mixed bag in 1Q, influenced by factors such as weak rupee, wage hike (TCS, WPRO, LTM, ECLX), businessrelated seasonality, and M&As. Tier-1 players, except TCS and WPRO, are expected to log margin expansion sequentially. Mid-cap companies may see a wider margin fluctuation, ranging from -100bps to +40bps QoQ, except BSOFT, which would witness a decline of 310bps due to the absence of one-offs. Net hiring is likely to be muted.

Key monitorables

i) FY27 revenue/margin guidance and growth trajectory being front-ended or back-ended.

ii) Management commentary on IT spending budgets for CY26.

iii) Incremental AI spending vs reallocation of existing IT budgets.

iv) Deal intake/pipeline.

v) Pace of decision making and project deferment/cancellation.

vi) Demand trends in key verticals such as BFSI, Retail, Manufacturing, HLS, Hi-Tech, and Communications.

vii) Evolving pricing and commercial constructs.

viii) Change in talent strategy and hiring plan owing to shift in skill requirements and productivity gains from AI.

ix) Enterprise ability and willingness to adopt and deploy AI-tailored solutions across functions.

x) Management perspective on the human+agent led delivery.

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