India’s IT sector is expected to face a subdued second quarter in FY27, with growth hampered by pricing pressures, geopolitical risks, and tough competition, though valuations remain attractive for investors.
India’s information technology sector is likely to face another subdued quarter in the run-up to FY27-end, as pricing pressure, tougher competition and geopolitical uncertainty continue to weigh on growth, according to Systematix Institutional Equities. The brokerage expects large-cap IT companies to report only modest organic revenue growth in the September quarter, while mid-cap firms are likely to keep outperforming their bigger rivals.
Systematix said tier-I IT firms are likely to post constant-currency organic revenue growth of between -1.5% and 2% in the second quarter of FY27, with gains in banking, financial services and insurance, manufacturing and healthcare expected to be offset by weakness elsewhere. It added that artificial intelligence-led pricing pressure, competitive bidding and geopolitical risks remain key drags on the sector, while industry demand weakened further in September as global uncertainty intensified, according to Business Standard and related market reports.
Margins at large IT services firms should improve slightly from the previous quarter as cost efficiencies and currency tailwinds help absorb wage increases and lower pricing. Even so, the brokerage warned that profitability may stay under pressure because many companies have already used up several of their usual levers, while some large firms may also book foreign-exchange losses linked to cash-flow hedging. Kotak Institutional Equities has separately said that layoffs and deferred wage hikes are helping support margins, even as growth stays weak.
The sector’s valuations have already been marked down sharply. Systematix said the Nifty IT index has fallen by about 30% over the past year, leaving many stocks at multi-year lows and at steep discounts to their 10-year averages. That decline reflects weak demand, AI-led deflation and a softer macroeconomic backdrop, though strong cash generation, healthy payouts and deal wins continue to provide support. The brokerage said lower AI token costs could open up fresh opportunities for leading IT services companies and sees limited downside from current valuation levels.
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