IT Q2 preview: Muted growth, steady margins likely; deal conversion, AI deflation in focus
Research advisory UnearthInsight expects the top-five IT companies to grow 0.5-1% quarter-on-quarter in the second quarter of FY27, with little improvement over the April-June period.
The article discusses the expected performance of India's top IT companies in the second quarter of FY27, highlighting muted revenue growth, steady margins, and the impact of AI on traditional services.
What happened
Analysts predict that India's top IT companies will experience muted revenue growth and steady margins in Q2 of FY27. The focus is on how quickly bookings convert to revenue and the impact of AI on traditional services. AI is reducing demand for labor-based services, especially in managed services and service desk functions. The US and Europe are expected to be the strongest markets for AI and digital transformation.
Why it matters
The article matters to AI developers and technology professionals as it highlights the ongoing shift in demand from traditional services to AI-driven solutions. It also provides insights into market trends and the impact of AI on revenue and margins, which are crucial for strategic planning and investment decisions.
- Muted revenue growth and steady margins are expected for India's top IT companies in Q2 of FY27.
- AI is reducing demand for traditional services, especially in managed services and service desk functions.
- The US and Europe are expected to be the strongest markets for AI and digital transformation.
- Companies are investing in AI platforms and partnerships to win contracts and improve margins.
- AI-related revenue is growing, but it remains a small portion of the industry's total revenue.
The bigger picture
The shift towards AI-driven solutions is affecting traditional IT services, with companies needing to adapt by investing in AI platforms and partnerships. This trend is expected to continue, with AI reducing the demand for labor-based services and increasing the need for efficiency and productivity gains.
The article concludes that India's top IT companies will face continued challenges in Q2 of FY27, with muted growth and steady margins. The shift towards AI-driven solutions is reshaping the industry, with companies adapting to new market demands and focusing on productivity and efficiency.
Technical details
- AI platforms and partnerships are being integrated into deals to win contracts.
- Generative and agentic AI are reducing demand for labor-based services.
- AI-related revenue is growing, with Infosys reporting 8.2% of its total revenue from AI in the June quarter.
- Software vendors like SAP and Oracle are selling AI-embedded products, reducing the need for traditional services.
FAQ
What is the expected revenue growth for India's top IT companies in Q2 of FY27?
India's top IT companies are expected to report muted revenue growth of 0.5-1% quarter-on-quarter in Q2 of FY27.
How is AI affecting traditional IT services?
AI is deflating traditional services, with generative and agentic AI reducing demand for labor-based services, especially in managed services and service desk functions.
What is the expected impact of AI on margins?
Margins are under stress due to wage hikes and AI investments, but some firms expect slight margin improvements by selling applications and platforms rather than just services.
Which markets are expected to be the strongest for AI and digital transformation?
The US and Europe are expected to be the strongest markets for AI and digital transformation, driven by investment in AI, cloud, and digital transformation.
What is the current share of AI-related revenue in the IT industry?
AI-led revenue remains under 5% of the industry's total revenue, though it is growing.
This summary and analysis were generated with AI from the original article and may contain errors. Read the original for the full story.
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Originally published by YourStory AI on Oct 4, 2026.
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