Weak outlook, ‘challenging’ environment weigh on sentiment as IT stocks bleed post Q4 earnings

On Friday, April 24, the NIFTY IT index tumbled as much as 1,252.2 points, or 4.15%, to hit the low of 28,872.10 against the previous close of 30,124.30 levels.

Out of ten constituents, nine were trading in the red, and one (OFSS) was in the green.

The losers' list was led by Infosys (down 5%). Next on the list were HCL Tech, Wipro, Coforge, and LTM.

Data showed that over the past five sessions, the NIFTY IT index has slipped 10%.

The March quarter earnings of major IT companies, including Infosys, TCS, Wipro, HCLTech, LTIMindtree, Tata Elxsi, and Persistent Systems, point to a sector navigating a difficult macro environment, with growth visibility still limited.

Challenging demand environment

Companies continued to highlight macro uncertainty in key markets like the US and Europe, which has led to delayed decision-making and slower deal conversions. While deal pipelines remain healthy, execution timelines have stretched, impacting near-term growth.

For instance, HCLTech CEO and MD C Vijayakumar (aka CVK) termed the year as one of an uncertain demand environment.

"During the quarter, our performance came below our expectations due to softness in certain parts of our business, due to lower discretionary spending, and delayed decision-making."

The top management at Infosys spoke of the calendar year starting on a strong note but pointed out that there was a "change in economic environment" amid the West Asia conflict, though things appear to be stabilising now.

Discretionary spending remains weak

One of the highlights of the IT sector's earnings so far is muted discretionary spending, especially in areas such as consulting, digital transformation, and non-essential IT projects.

Clients are prioritising cost optimisation and efficiency-led deals over large-scale transformation initiatives, weighing on revenue growth.

AI: Key focus area

Most companies emphasised artificial intelligence (AI) as a major growth driver, with increased investments in AI capabilities, partnerships, and solutions.

Cautious guidance

FY27 guidance across companies has been conservative, indicating that a sharp recovery is unlikely in the near term. Growth expectations remain modest, with management signalling that improvement will be gradual and dependent on macro stability.

Companies have given weaker guidance that has weighed on investor sentiment.

For instance, for the quarter ending June 30, 2026, Wipro expects revenue from its IT services business to be in the range of $2,597-$2,651 million. This translates to a sequential guidance of (-) 2.0% to 0% in constant currency terms.

Addressing the muted guidance for the upcoming quarter, Pallia attributed the softness to a specific client issue in the Americas and delayed ramp-ups on a deal. He also noted that Q1 has traditionally been a weaker quarter for Wipro due to seasonality.

For FY27, Infosys has given a revenue growth forecast of 1.5% to 3.5% in constant currency (CC) terms.

The IT major projected its FY27 company revenue growth to be in the range of 1% to 4% in constant currency (CC).

The company attributed the broad band of guidance to market volatility, reduced discretionary spend, and two client-specific situations where it expects some ramp-downs.

Bottom line

The sector is in a transition phase—with traditional demand drivers slowing and new growth engines like AI still scaling up. Until discretionary spending revives, growth is likely to remain moderate and uneven across companies.

What NASSCOM said

Restoring revenue growth in IT firms and evangelising the rising role of artificial intelligence and technologies in companies will be key priority areas for NASSCOM, Srikanth Velamakanni, the newly appointed Chairman of the IT industry body, said on Thursday.

Fractal co-founder and Group Chief Executive Velamakanni told PTI in an interview that during his tenure, he would like to see India compete even better and more aggressively in the age of AI, and the industry body would look at policy support to enable it to build more capacity and introduce an AI-led curriculum in the education system.

"Restoring revenue growth is very important across the (IT) industry. As we progress through the year, there will be some restoration of revenue growth. We will also see that companies will drive revenue per employee growth as well," Velamakanni said.

Velamakanni said that with the rapid progress in technology, machines will surpass human work, but that does not mean a decrease in the importance of human roles.