IT Growth Slows Down in FY26 Amid Client-Specific Challenges and Delays in Ramp-Ups

Indian IT Firms Slip into Multi-Year Slowdown

India's information technology (IT) firms have fallen into a multi-year slowdown in FY26, with growth plummeting to low single digits. The deceleration is widespread, affecting Tier-I players, as slower deal ramp-ups and client-specific issues weigh heavily on revenue. Despite strong deal wins, the sector's growth has steadily cooled from post-pandemic highs, marking a continuation of a broader slowdown that has played out over the past few years.

Growth Slows Across Tier-I Players

Among Tier-I players, HCLTech reported the highest constant currency (CC) growth at 3.9 percent, missing its own guidance band of 4-4.5 percent. Infosys grew 3.1 percent, while Tech Mahindra posted a muted 0.6 percent increase. In contrast, Tata Consultancy Services and Wipro saw revenues contract by 2.4 percent and 1.6 percent respectively.

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Client-Specific Issues Resurface

Client-specific issues played a significant role in FY26 performance, particularly in select accounts. At HCLTech, CEO and MD C Vijayakumar cited two US-based clients that significantly ramped down spending due to their own business considerations. Two SAP projects were cancelled, which are expected to have a 50-basis point impact on the company's growth guidance. Similarly, Wipro flagged "client-specific issues" and delayed ramp-ups in certain large deals as factors impacting performance in parts of its business.

AI Deflationary Effects

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The slowdown is partly due to AI deflationary effects, as clients want AI benefits upfront, leading to a topline pressure that reflected in the slower than guided growth reported by IT companies in FY26. According to Sumit Pokharna, VP- Fundamental Research, Kotak Neo, AI deflationary pressure is expected to impact revenue of IT companies between FY27 to FY29, ranging from 3-3.5 percent. This varies from company to company, with Infosys being the most vulnerable due to its high exposure to application services.

Deal Wins Remain Strong

Despite the slowdown, demand has not fallen away in the same way. TCS ended FY26 with $40.7 billion in total contract value, among its highest ever. Infosys reported $14.9 billion in large deals, with more than half being net new. Tech Mahindra reported $1.07 billion in quarterly deal wins, with a net new deal wins total contract value (TCV) standing at $3.7 billion, growing 41.6 percent YoY.

Deal Pricing Shift

The shift towards AI-led engagements has affected how revenue comes through, both in timing and scale. Deal pricing is beginning to move, with clients pushing for gains to be reflected in contracts. Large, multi-year deals are increasingly being broken into smaller, efficiency-led engagements. HCLTech has flagged a 2-3 percent annual deflation impact from AI-led efficiencies, which could be exacerbated by the growing adoption of AI.