Q2FY27 IT preview: Top tier IT companies to post modest growth; AI deflation to affect earnings this season

The IT stocks were trading green on Monday afternoon, amid the renewed buoyancy for the sector. The shares jumped as much as 3% on Monday after pulling the benchmark NIFTY IT index up 1.6%, hitting intraday high of 28,775. The buoyancy was largely driven ahead of the quarterly earnings and optimism after the global software and consulting firm Accenture Plc announced its Q4 earnings on Thursday, Oct 1, 2026

Accenture Plc Q1 earnings

The global consulting and software firm announced their quarterly revenue at the higher end of the projections. The revenue surged 6% YoY to $18.7 billion for the fourth quarter and $74.2 billion for the entire year, also up 6% YoY in USD terms and 5% in the local currency terms.

The strong revenue growth was largely driven by robust new bookings of $22.2 billion for the quarter and $84.5 billion. This translates into book-to-bill ratio of 1.2x. The consulting booking stood at $9.4 billion and managed services at $12.7 billion.

At the operating level, the GAAP operating margin 15.3%, up 370 bps over the same period last year.

What to expect from Q2FY27 earnings?

The Q2FY27 earnings are expected to show a moderate growth performance for the top-tier IT companies as absence of large deals haunts the large cap companies. Meanwhile, the mid-cap IT companies are expected to outperform their large cap peers, extending the broader trend past few quarters. The AI deflation continues to remain major headwind for the sector affecting billable revenue model for the IT majors.

Unfavorable currency impact

While the topline growth is expected to be in the modest-to-moderate range, the operating margins remaining are expected to remain under pressure due to unfavorable currency impact. Lack of major currency depreciation during the previous quarter is expected to affect margins during the quarter. However, some cushion could be visible with firms focused on selling applications and software. In the aftermath of AI, companies are forced to drive new products and deal wins through product as a service model, as traditional billable hours model stands to lose.

AI deflation driving major headwinds

The AI integration has turned out to be a tailwind as well as headwind for the IT sector. While the AI adoption at enterprise level is driving positive sentiment around the IT companies, but it is also reducing the requirement of billable hours, which remains a traditional model for IT companies. However, in the aftermath of AI, the IT companies are now forced to shift to outcome-based pricing model, which gives the companies a fixed pricing on certain achieved outcome vs the billable rate for labor employed on the project. The model is expected to create a deflationary environment in the IT sector, driving the overall topline growth in lower single digits. However, in the longer-run a multi-agent led product or outcome-based model could drive strong margins for the companies.

Rerating in valuations

In aftermath of current correction in the IT companies, the valuations have now touched multi-year lows, with subdued earnings growth. At the aggregate level, NIFTY IT index trades at 18x price to earnings, much lower than its five-year or three-year median of 27x. At the stock specific level, the Top four IT firms including TCS, Infosys, Wipro and HCL Technologies trade in the range of 12x-14x price-to-earnings. While the mid-tier IT firms like Oracle Financial Services & Software, Persistent, LTM, Coforge, and Mphasis, trade above 28x price-to-earnings on TTM basis.

Despite the multi-year low valuations, investors and analyst expect rerating and above expectation earnings could drive the IT stocks higher after the recent correction.