The January-March quarter results from Tata Consultancy Services, Infosys, HCLTech and Wipro reflected a sector navigating two cross-currents: macro uncertainty linked to geopolitical tensions and a structural shift driven by artificial intelligence that is beginning to compress revenues. While sequential growth held up across firms, subdued guidance for FY27 pointed to weak near-term visibility and disappointed investor expectations.
Analysts expecting currency tailwinds from a weaker rupee instead flagged early signs of AI-led deflation. TCS reported a 0.5% decline in FY26 revenue to $30,017 million, down 2.4% in constant currency terms, marking its first contraction on this metric. Wipro’s IT services revenue fell 0.3% to $10,478 million, while Infosys posted a sequential constant currency decline of 1.3–1.35% to $5,040 million in the March quarter. The numbers suggest that gains from efficiency are increasingly being shared with clients through pricing resets rather than translating into higher volumes.
AI-Led Pricing Resets
Company managements acknowledged the pressure, though most framed it as transitional. HCLTech CEO C Vijayakumar quantified the shift, saying, “AI deflation in our traditional services could be 2% to 3% a year”. Analysts echoed this view. Biswajeet Mahapatra of Forrester said, “We expect AI-driven productivity to translate into near-term pricing pressure rather than volume decline, creating a 1% to 3% annual revenue headwind for large IT services firms in FY27 where contracts remain effort-based”. He added that TCS’s dollar revenue decline reflects intact demand but lower realisation as clients renegotiate pricing to capture efficiency gains.
The shift is also altering deal dynamics. Executives at Infosys and HCLTech indicated they had walked away from certain AI-led contracts citing aggressive pricing and weak economics. Pareekh Jain of EIIRTrend said clients are reassessing AI investments amid macro volatility, slowing decision-making. “Mid-tier firms are offering aggressive discounts, disadvantaging large caps,” he said, adding that the tilt towards shorter-duration contracts indicates caution. This was visible in deal metrics: TCS reported a 29% sequential rise in total contract value to $12 billion, but Infosys saw TCV fall 33% to $3.2 billion and HCLTech reported a 35% drop to $1.93 billion. Wipro’s TCV declined 13.9% year-on-year, though it rose marginally sequentially.
Shifting Deal Dynamics
Analysts said the impact extends beyond pricing. Sanchit Vir Gogia of Greyhound Research said that AI is changing how clients allocate spending, with more budgets moving to data, infrastructure and governance layers that do not immediately convert into high-margin services revenue. He said the transition is also causing delays as enterprises pause to reassess programmes, affecting near-term visibility. TCS CEO K Krithivasan likened the phase to the early digital cycle, when new revenue streams initially cannibalised legacy business before scaling up, though he did not offer a timeline for recovery.
All four firms indicated that advanced AI revenues are expanding, partially offsetting the drag. TCS said its annualised AI revenue crossed $2.3 billion in the fourth quarter, about 7% of total revenue. Infosys earlier indicated AI services contributed 5.5% of revenue in the December quarter, while HCLTech reported $155 million in annualised AI revenue. Even as this segment scales, the sector’s near-term trajectory will hinge on how quickly AI-led gains translate into new revenue pools rather than lower pricing for existing work.