The Q1 verdict: Can TCS, Infosys, other IT results stop a Rs 17 lakh crore AI-led rout?

India's IT stocks enter the June-quarter earnings season with little room for disappointment. The sector has already suffered one of its sharpest corrections in years. TCS, Infosys, Wipro and LTIMindtree are now down at least 50% from their all-time highs, while the broader pack has seen a steep erosion in market value.

Across 10 major IT companies, the combined market-cap loss from peak levels is estimated at more than Rs 17 lakh crore. TCS has seen the biggest destruction in absolute value. The stock has fallen about 56% from its all-time high of Rs 4,592.25 in August 2024 to Rs 2,033. Its market cap has dropped from Rs 16.48 lakh crore to Rs 7.36 lakh crore, wiping out more than Rs 9.12 lakh crore.

Meanwhile, Infosys has nearly halved from its peak of Rs 2,006.45 in December 2024 to Rs 1,006, while its market value has fallen to Rs 4.08 lakh crore from Rs 8.30 lakh crore. Wipro is down 54% from its peak, while LTIMindtree has lost more than 53%. HCL Tech, Persistent Systems, Mphasis and Tech Mahindra have also seen sharp declines.


This makes the upcoming earnings season important, but brokerages are not expecting a quick recovery.

Why are there muted expectations?

Morgan Stanley says IT companies are likely to see a muted first quarter and subdued commentary for the second quarter. It sees risks to FY27 revenue guidance ranges and has lowered estimates for large-cap IT companies.

The brokerage has also downgraded TCS to equal-weight, saying the stock’s premium to Accenture has risen above 40%, putting the group’s valuations at risk. It expects organic revenue growth for most large-cap IT firms to drift towards 1.5-3.5%, except Wipro, where it sees a decline.

The pressure is not just from weak discretionary spending. The sector is also dealing with slower decision-making by clients, pricing pressure on contract renewals and rising investments in artificial intelligence services. These factors are likely to keep growth weak even in a quarter that is usually seasonally stronger.

Also Read: Reliance market value now equals India's top five IT companies combined

Kotak Equities expects June-quarter revenue growth of -1% to +1% for large IT companies. It expects HCL Tech’s services business to decline 1%, Wipro to fall 1.1%, TCS to report flat revenue and Infosys to post only 1% organic growth quarter-on-quarter. Tech Mahindra may do slightly better, with 1% sequential growth. Kotak said the West Asia crisis and AI-led deflation are starting to affect growth.

AI risks and more

AI has become the biggest debate around the sector. Until recently, artificial intelligence was seen as a new opportunity for Indian IT firms. Now, investors are worried that it may first hurt revenue by forcing companies to pass productivity gains back to clients. Kotak has moved its GenAI deflation assumption to the upper end of the 3-3.5% range and cut fair values by up to 21%.

Nomura framed the issue more directly, asking whether quarterly earnings matter as much anymore when investors are focused on AI and macro risks. The brokerage said the Nifty IT index has underperformed the broader Indian market by 20% since January 1 this year, mainly because of P/E derating linked to AI obsolescence fears. It still believes the long-term market for Indian IT will expand, but near-term growth is likely to remain weak.

Also Read: Investors looking for shelter from AI storm are turning to India

Short-term take

The near-term view is similar across most brokerages. Motilal Oswal expects demand commentary to remain soft as macro uncertainty, AI and geopolitical concerns weigh on discretionary spending. It sees constant-currency growth for large-cap IT companies in a range of -1.5% to 2%. It expects the soft start to extend into the second quarter as well. The brokerage said the top end of FY27 guidance may become difficult to defend if the first half remains below the required run rate.

Margins may offer some support, but not enough to change the broader story. A weaker rupee has helped cushion margin pressure for some companies. Kotak noted that the rupee depreciated 2.6% quarter-on-quarter and 9.7% year-on-year, helping offset pricing pressure. But wage hikes, weak operating leverage, AI investments, restructuring costs and hedging losses could weigh on profitability. Systematix expects margins for large IT services companies to decline by 10-100 basis points quarter-on-quarter, excluding Tech Mahindra.

All eyes on guidance

Infosys may either narrow or slightly revise its FY27 growth band, depending on the brokerage view. Morgan Stanley expects it to tighten guidance to 2-3.5%, including 1 percentage point from inorganic activity. Kotak expects a revision to 2-3.5% from 1.5-3.5%, while Nuvama expects an upgrade to 2.5-4%, including acquisition contribution. HCL Tech is largely expected to retain guidance, though several analysts believe growth may land below the midpoint. Wipro is expected to guide for weak second-quarter growth, with estimates ranging from -2% to +1%.

One clear theme is the growing gap between large-caps and mid-tier IT companies. Most brokerages expect mid-caps to keep outperforming. Morgan Stanley prefers Mphasis and Coforge over engineering R&D plays. Kotak favours Coforge, Hexaware and Indegene among challengers. Nuvama expects Tier-2 companies to outpace Tier-1 firms, helped by stronger deal ramp-ups and select pockets of demand.

The June-quarter numbers may not rev up sentiment by themselves. But they will show whether the Rs 15 lakh crore crash has already priced in the pain, or whether investors still need to adjust to a slower, more uncertain IT cycle.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)