Macros, AI, geopolitical overhang to drag Q1 showing of IT cos: Motilal Oswal

The macro environment, AI and geopolitical overhangs are likely to weigh on discretionary spends, decision cycles, and demand commentary for exports-led IT services firms leading to a soft Q1 FY27 showing, Motilal Oswal Financial Services said adding it expects some companies to walk back top end of guidance bands this quarter.

The latest note by Motilal Oswal highlighted that Accenture's recent commentary underlines slower decision-making and cautious discretionary spends, lending support to expectation that demand recovery is likely to remain in a flux.

Accenture, last month, narrowed its full-year 2026 revenue growth guidance to 3-4 per cent from the earlier 3-5 per cent, triggering a sharp decline in its share price and sending fresh jitters across an already-nervous global IT services industry that is confronting macro uncertainties and bracing for AI impact on legacy business models.


On Tuesday, KPIT Technologies said it expects the financial performance for Q1 FY27 to be lower-than-expected previously, owing to a sudden drop in revenues over the last few weeks.

It warned of an expected decline of about one per cent in USD-reported revenues for Q1 FY27 as compared to Q1 FY26, primarily due to "sudden actions by some European OEMs triggered by their recent profit warnings and adverse business outlook".

"We expect demand commentary to stay soft in 1QFY27, as macro, AI and geopolitical overhangs continue to weigh on discretionary spending and decision-making cycles," Motilal Oswal said.

Citing this backdrop, it pointed to a tepid sequential growth for the tech stack in 1QFY27, with the soft start likely extending into 2Q FY27 as well.

"With 1H (fiscal's first half) tracking below the run-rate needed to sustain the upper end of FY27 guidance ranges, the ask on 2H (second half) to bridge the gap becomes increasingly impractical. We therefore expect companies to walk back the top end of their guidance bands this quarter," it said.

It expects Infosys to lower the upper end of its FY27 revenue growth guidance by 50 basis to 1.5-3 per cent year-on-year, while HCLT could trim the higher end of its services growth guidance by 100 basis points.

"1QFY27 results are likely to mirror this backdrop, with QoQ (quarter on quarter) constant currency growth expected in the range of -1.5 per cent to 2 per cent for large-caps. Mid-caps are expected to outperform once again, with growth ranging from -1.0 per cent to 4.8 per cent, led by continued large-deal ramp-ups," the brokerage said in the report.

Banking financial services and insurance remains the most resilient vertical across its coverage universe of tech, supported by continued deal ramp-ups and relatively stable spending, according to it.

Hi-tech is mixed, with AI-related work offsetting client-specific weakness in parts of the portfolio. Telecom remains soft, while manufacturing is seeing uneven demand across auto and industrial clients, as per Motilal Oswal.