Indian IT shares remain volatile after a three-year downturn driven by waning global tech budgets and the AI revolution, with analysts highlighting a cautious path to recovery amid sector-wide challenges.
Indian IT shares are still trying to find a floor after a bruising three-year stretch in which global technology budgets cooled, project decisions were delayed and artificial intelligence began reshaping the economics of outsourcing. Even so, the sector is not simply in retreat. Analysts say it is moving through a difficult transition, with traditional discretionary spending under pressure even as enterprises accelerate modernisation, cloud migration and AI-led change. That tension has left several stocks far below their peaks, even as long-term demand for digital transformation remains intact.
JPMorgan has said revenue growth across India’s IT services industry has been stuck in the 2% to 3% range over the past three years, and expects the next two years to remain challenging as AI-driven pricing pressure and wider global uncertainty weigh on growth. Kotak Institutional Equities has taken a similarly cautious view on the near term, saying companies are trimming costs through layoffs and deferred wage increases to defend margins, while tier-one firms may post only minimal sequential growth in the second quarter of FY27. Nomura, however, sees a more gradual recovery forming, with large-cap industry growth improving to 4.5% by FY27 as macroeconomic stress eases and AI monetisation becomes clearer.
That uncertain backdrop helps explain why a group of once-high-flying names now trade at steep discounts to their peaks. KPIT Technologies, which focuses on automotive software and engineering, has fallen about 73% from its high, while Tata Elxsi is roughly 70% below its top. Cyient is down about 57%, and Wipro, Tata Consultancy Services and Infosys are each about 50% to 55% off their respective highs. Mphasis has held up better than some of its peers but still trades well below its record level.
The sell-off has not been uniform, and neither is the case for recovery. The more engineering-heavy companies, such as KPIT, Tata Elxsi and Cyient, depend heavily on automotive, transportation and broader research-and-development spending. KPIT reported US$257 million in new engagements in the first quarter of FY27 and said AI-led productivity was improving, while management pointed to stronger growth in the second half of the year. Tata Elxsi posted revenue growth of 14.5% year on year in the same period, underscoring that pockets of demand remain alive even in a subdued market. Cyient, meanwhile, said its large-deal pipeline reached the highest level in 12 quarters.
The larger diversified IT services firms are leaning on order books, cloud migration and enterprise transformation rather than a quick rebound in discretionary spending. TradeBrains noted that Tata Consultancy Services, Infosys and HCLTech are carrying sizeable pipelines built on vendor consolidation, core modernisation and cloud work. TCS reported a total contract value of US$9.5 billion in the first quarter of FY27, including an US$800 million AI-led transformation deal, while Infosys reported US$3.6 billion in large deal wins, with 61% coming from net-new business. Those numbers suggest that deal activity has not disappeared, even if conversion into revenue remains uneven.
Whether these stocks can recover will depend less on one broad macro recovery than on whether companies can turn AI and digital spending into measurable earnings growth. Brickwork Ratings has projected 6% revenue growth for the sector in FY27, arguing that India’s IT industry is shifting away from volume-based contracts towards higher-value digital work. Crisil, by contrast, expects growth to stay muted through FY27 and FY28, warning that AI-native solutions could keep pressure on pricing and trigger more contract renegotiations. For investors, the message is clear: the next leg higher will likely go to firms that can protect margins, win large deals and adapt quickly to an IT market being rewritten by AI.
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