Domestic IT firms are beginning to report meaningful revenue from artificial intelligence, but the gains are yet to translate into stronger overall growth. This is because AI-led work is increasingly replacing traditional outsourcing rather than adding to it, highlighting the industry’s biggest challenge in the early stages of the technology shift.
The April-June quarter earnings underscored this disconnect. AI revenue and large deal wins climbed across most large IT firms, yet topline growth remained muted and guidance for the rest of FY27 turned more cautious.
Infosys trimmed its annual revenue growth forecast, Wipro guided for between a 1.5% sequential decline and 0.5% growth in the September quarter, while HCLTech retained its 1-4% revenue growth guidance despite reporting record deal bookings. Tata Consultancy Services (TCS) and Tech Mahindra continued to refrain from offering formal revenue guidance, although both struck an optimistic tone on demand.
“Growth was muted at the largest firms. AI revenue was not,” Sanchit Vir Gogia, chief analyst at Greyhound Research, told Fe. “Infosys disclosed AI at 8.2% of quarterly revenue. LTM disclosed 12% and TCS is running at a $2.6 billion annualised rate. Four of the six majors now report AI as revenue rather than pipeline, and consolidated growth still landed between 1% and 6%.”
According to Gogia, the numbers point to a structural shift in the industry. “AI revenue is growing on top of a base that is eroding underneath it faster than the new work arrives. Rising AI share and flat total revenue are the same sentence read from opposite ends. The industry is reporting substitution and calling it momentum.”
The mismatch is equally visible in deal wins. TCS signed contracts worth $9.5 billion in total contract value during the quarter while its annualised AI services revenue crossed $2.6 billion, yet revenue increased just 0.4% sequentially. HCLTech reported its highest-ever first-quarter deal bookings of $2.4 billion and a 62.1% year-on-year rise in Advanced AI revenue in constant currency, but left its guidance unchanged. Wipro’s large deal bookings rose 12.9% sequentially to $1.63 billion even as it projected a largely flat September quarter. Infosys signed $3.6 billion of large deals, up from $3.2 billion in the previous quarter, with 61% classified as net new business, but still lowered its full-year revenue outlook.
Analysts say the gap reflects the changing economics of outsourcing. Enterprises are increasingly using AI-driven productivity gains to renegotiate contracts and demand lower prices, even as service providers invest heavily in AI platforms, talent and delivery capabilities.
“Most of the large deals being signed today are still traditional outsourcing agreements that incorporate AI rather than being built from the ground up around AI-native operating models,” Phil Fersht, founder and CEO of HFS Research, said. “Enterprises are using AI-driven productivity expectations and intense competitive bidding to negotiate lower prices, while providers are carrying the cost of building new AI capabilities.”
Fersht said the next phase of growth would depend on Indian IT firms moving beyond labour-based commercial models towards AI-native platforms, proprietary intellectual property and outcome-based contracts that can command premium pricing.
Pareekh Jain, lead analyst at EIIRTrend, said the industry’s traditional playbook of scaling revenues through larger workforces is becoming less effective. “Companies are defending margins while keeping hiring measured. But they have to become more competitive in AI work, even if that means sacrificing margins initially. That’s where future growth will come from.”
