The Indian IT sector is expected to continue to grapple with weakened revenues due to AI-led deflation for the next three years, according to an S&P Global Ratings report. While most IT services firms still generate revenue from businesses that aren’t prone to AI disruption, like cloud-related digital transformation or IT consulting contracts with long timelines, overall revenue from the sector will see a transformative change after 12-24 months.
However, the report flagged that the impact on system integrators will not be balanced across the board. “Players such as Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro benefit from scale and large customer bases. As such, they benefit from diversified offerings and established relationships in multiple industries and verticals, which will allow them to offer more competitive prices. Their strong cash balances also offer greater scope for AI-related investments,” the report stated.
It also predicted that revenue growth for IT majors Infosys, HCL Tech and Wipro would be dragged further from 4-6% in FY26 to lower ends of single digits with 2-4% over FY27 and FY28.
Even as IT spending is expected to remain cautious in the foreseeable future, a mix of other factors like increased competition from AI-native firms as well as a growing shift towards fixed-price outcome-based contracts could be detrimental to profitability. In recent months, OpenAI and Anthropic have launched their own enterprise AI services firms to proliferate deployment of their products targeting the mid-size market.
Besides, there are new age AI consulting startups and boutique firms that have entered the playing field.
Over the next two years, Infosys is anticipated to retain the second spot among IT majors behind TCS due to “greater geographical and sector exposure, particularly to the financial services industry,” the report said, assigning the Salil Parekh-led firm a ‘stable’ rating. Its peer HCL Tech is also expected to gain from leveraging its robust engineering and research segment to help bag more AI-led deals. The report warned that the firm will maintain a lean workforce and high utilisation rates to alleviate some of the margin pressure from greater reliance on subcontractors.
Additionally, the report shared that Wipro’s offshoring and service-delivery capabilities will continue to strengthen its business even as the company’s comparatively higher attrition rate and lower utilisation rates squeeze Ebitda margins.
Notably, IT firms will also keep an eye out for high-ticket acquisitions as organic growth slows down. While Infosys, HCL Tech and Wipro have mainly been focused on “bolt-on” acquisitions over the past few years, that bring in new capabilities or expand markets, the report expects them to lean more towards acquisitions that amplify their existing scale of revenue. This riskier strategy is instead being followed by mid-tier IT firms like Coforge and Persistent Systems.
Despite the drag, AI adoption will also underline the structural advantages that IT majors have due to higher demand for areas including integration, data architecture, governance and enterprise-level transformation – all of which require contextual understanding that AI agents lack on their own. The report earmarked IT majors like Infosys, HCL Tech and Wipro as being particularly favoured given their history of strong customer retention. These three companies currently have recurring business accounts constituting more than 95% of total revenue.
