Deal ramp-downs, repricing pressure signal tough road ahead for IT services firms

In Q4 FY26, IT services firms had to deal with multiple challenges amid a tougher macro environment. Though other firms did not explicitly mention ramp-downs, HCLTech reported deal losses, signalling headwinds ahead for IT firms in FY27. Analysts said conversion delays or cancellations are a real risk and that AI deflation will aggravate in the coming year.

Infosys’ guidance of 1.5-3.5% (1.25-3.25% in organic CC) in FY27 is below Motilal Oswal Financial Services’ estimates at the top end. “It tells us that AI is now compressing the existing book of business. While part of this is attributable to competitive intensity and pricing in a low-demand environment, we expect the impact of deflation to continue as AI productivity benefits are passed on to clients,” Motilal Oswal said.

The second-largest IT services firm, in line with peers, pointed out that telecom demand remains uncertain in FY27, as clients pare back spends and move to agentic AI across IT and BPS. “This comes on the back of a difficult couple of years for the sector, with discretionary spends still selective and decision-making slowing in pockets like manufacturing and Europe. Manufacturing faces a 75-100bp headwind from Daimler ramp-down,” the brokerage firm stated.

Margins remained stable for Infosys at 21% in FY26, with benefits from currency and Project Maximus being reinvested into AI capabilities, talent, and sales. FY27 margin guidance of 20-22% factors in headwinds from wage hikes, AI productivity pass-through, and about 70bp impact from acquisitions, partly offset by efficiency initiatives, it said, estimating EBIT margins at 20.9%/21.0% for FY27E/FY28E.

It also said that repricing pressure is most visible at the bid/renewal stage.

During the company’s Q4 FY26 earnings conference, Infosys CEO and MD Salil Parekh said, “As we look ahead to the financial year 2027, we see large opportunities in AI services, continued competitive intensity and AI productivity impact. With a clear AI strategic road map and real-world toolkit of Topaz Fabric, we are well-positioned to support our clients’ transformation, technology and operations objectives.”

The company expects acceleration in growth in Financial Services, and the Energy, Utilities, Resources, and Services verticals, and expects H1 to be stronger than H2.

CFO Jayesh Sanghrajka said the FY27 guidance includes contribution from Stratus, which the company closed last week, but excludes Versent JV and Optimum Healthcare acquisitions that are yet to be closed.

“Reduction of 0.75% to 1% was due to a lower revenue from one of our large European manufacturing clients. This was due to reduced client spend on account of the challenging macro environment, along with our conscious decision to not pursue a certain deal that was not aligned to our return expectations,” he added.

HCLTech, which expects revenue growth guidance for FY27 to be between 1% and 4% YoY in CC, won total contract value (new deal wins) at $9,323 million in FY26.

The company’s CEO and MD, C Vijayakumar, at the company’s analyst call said they have lost some deals and that they are voluntary losses. “We have walked away from some deals which will not make sense and that would have easily contributed at least $1 billion more to this number. It’s only prudent to be a little bit more careful about this and spend the energy and organisational bandwidth on more reinventing for the future and enhancing our AI positioning and delivering more value to our clients using AI, instead of really fighting some of the traditional deals where it’s hyper-competitive,” he said, signalling macro environment uncertainties.

For the country’s largest IT services firm, Tata Consultancy Services (TCS), client demand in the fourth quarter remained disciplined amid a challenging macro environment, shaped by heightened geopolitical tensions, tariff-related uncertainty, and increasingly stringent manufacturing and data-sovereignty requirements.

“Customers continued to prioritise cost rationalisation to fund a strategic pivot towards AI-led transformation, with spend focused on vendor consolidation, GCC expansion, and structural efficiency, and the resulting savings reinvested into scaling AI across core operations and product portfolios,” TCS CEO K Krithivasan said.

Wipro expects revenue from its IT Services Business segment to be in the range of $2,597 million to $2,651 million. This translates to sequential guidance of (-)2.0% to 0% in constant currency terms in the first quarter of FY27. CEO and MD Srini Pallia pointed out that geopolitical and policy disruptions have become the new normal. Changing trade rules, tighter immigration policies, and prolonged conflicts continue to create uncertainties for industries and economies,” he added.

Industry to see 3-5% growth in FY27 amid AI shift

In its analysis, UnearthInsight said tech services reported 2-4% in FY26 and that FY27 offers little relief at 3-5% amid AI shift and GCC boom. It pointed out that at $8.4 billion, cumulative deal pipeline is strong, but conversion is slow.

“Industry is past the ‘AI capability build’ phase, but has not yet monetised it. No meaningful jump in growth, revenue/employee, or margin from AI-embedded deals or internal AI efficiencies,” it said.

It also said that the top-5 IT companies will see 2-4% gradual demand recovery, but there is slow large-deal conversion.