India’s earnings season kicks off with Tata Consultancy Services on Thursday, with the sector’s bellwether set to answer a key question: has the recent AI-led selloff in IT stocks gone too far, or is it signalling a deeper structural reset?
The March quarter is expected to be steady but subdued. Brokerages estimate TCS will report around 1–3% sequential revenue growth, while the broader tier-1 IT pack is likely to post -1% to +1% constant currency growth, pointing to a demand environment that has stabilised but not yet recovered.
Demand isn’t deteriorating further, but there are no clear signs of recovery either. Clients in key markets such as the US and Europe continue to prioritise cost optimisation and delay discretionary spending.
Deal pipelines remain intact, but closures are taking longer, reflecting caution amid macro uncertainty and geopolitical risks.
The more important shift is structural. The immediate impact of AI is beginning to show up in pricing rather than volumes, with clients pushing vendors to pass on productivity gains from automation.
Analysts estimate this could result in 1–3% pricing pressure in certain contracts, particularly in time-and-material models. At a broader level, AI could drive further deflation over time, even as it expands the overall opportunity set for IT services.
Margins are expected to remain stable to slightly positive in the near term, supported by currency tailwinds and cost discipline. TCS could see a modest sequential expansion.
However, the scope for further margin gains appears limited, as most efficiency levers such as lower attrition and higher utilisation have already played out, while investments in AI capabilities may offset some of the benefits.
At the same time, the sector is undergoing a shift in its operating model. Growth is gradually moving away from headcount-led expansion towards productivity-driven delivery, with increasing focus on outcome-based pricing.
IT firms are also repositioning themselves as AI implementation and integration partners, moving up the value chain from execution to orchestration.
The Nifty IT index has corrected sharply in recent months as investors reassessed growth prospects in an AI-led environment, bringing valuations closer to historical averages.
TCS’s commentary will now be critical in determining whether the sector is stabilising or entering a slower, structurally different phase of growth.
This may not be a breakout quarter, but it is likely to set the tone for how investors approach the IT sector in the months ahead.