Indian IT stocks staged a comeback in July after spending more than two years on the sidelines. The Nifty IT Index surged 16.7% during the month, its biggest monthly gain in five years.
Jefferies upgraded the sector from ‘Underweight’ to 'Neutral', citing tactical upside due to a reversal of the AI trade, as investors become less concerned about AI disrupting IT services companies. The brokerage also sees limited downside amid cheaper valuations in software companies.
How sustainable is July's rally? Are investors just rotating into cheaper IT stocks, or are company earnings beginning to stabilise?
The latest quarterly results show mixed signals. Deal wins remain healthy, while some companies sound optimistic. But client spending is uneven and management teams continue to flag longer decision-making cycles among customers.
“The real test is not July's rally. It’s whether deal wins in the September-quarter can prove this is structural and not just a bounce from oversold levels,” independent market expert Ajay Bagga said.
In this edition of Chart of the Week, we examine whether this rally has legs.
Healthy deal wins, but slower revenue growth
The Q1FY27 earnings show companies winning large transformation deals despite cautious technology spending. While AI is becoming a bigger part of those contracts, revenue growth has yet to pick up.
During the quarter, Infosys reported stronger large deal wins, which rose 12.5% sequentially to $3.6 billion. HCLTech saw record new deals worth $2.4 billion, up 26.3% from the previous quarter. This excluded the mega deal signed in early July with a European Fortune Global 50 company.
Wipro signed fewer deals overall, but large deal wins climbed 12.9%. Wipro clients are prioritising bigger transformation programmes even as overall technology spending was subdued. Tech Mahindra's deal wins for the quarter were largely unchanged at around $1.1 billion.
Unlike its peers, TCS reports total contract value (TCV) instead of quarterly deal wins, making direct comparisons difficult. The company’s TCV declined over 20% from the previous quarter to $9.5 billion, despite winning multiple business transformation contracts such as the $800 million SKF deal.
AI was a common theme in many of the largest contracts signed during the quarter. HCLTech said demand was driven by AI-led transformation, cloud migration and digital engineering, while its Advanced AI business grew 62.1% YoY.
TCS said the annualised revenue run rate for its AI services business grew 13.6% from the previous quarter, with growth backed by real-world deployments. The company deployed AI agents alongside insurance claims examiners, helping cut claim settlement time by 40%. Managing Director and CEO K Krithivasan said, “AI typically delivers 10-15% productivity gains,” with customers often choosing to spend those savings on additional work instead of cutting technology budgets.
Wipro’s Managing Director and CEO Srini Pallia echoed that view, saying clients are focusing on cost reduction and vendor consolidation. “Some of our clients are reinvesting those cost savings into AI capabilities,” he added.
However, the stronger order pipeline has yet to translate into broad-based revenue growth. Tech Mahindra was the only major IT company to report notable QoQ revenue growth at 2.6% in constant-currency. Infosys grew 1%, while TCS managed just 0.4%.
HCLTech's revenue slipped 0.5% due to weak discretionary tech spending and seasonal slowdowns. Wipro reported a steeper 1.2% decline as demand in the Americas remained soft.
The recovery still lacks breadth
Healthy deal wins didn't necessarily translate into a stronger outlook. While Tech Mahindra sounded confident, Infosys cut its guidance and Wipro stayed cautious, highlighting an uneven recovery across the sector.
Take Infosys. Managing Director and CEO Salil Parekh said financial services, manufacturing and energy saw healthy demand. But retail and consumer goods are weaker because of inflation, tariffs and geopolitical uncertainty. Despite stronger large-deal wins, Infosys lowered its FY27 revenue growth guidance to 1.5-3%, trimming the upper end of the range by 50 basis points.
Explaining the revised outlook, CFO Jayesh Sanghrajka said, “The guidance reflects slightly over 1% impact from reduced spending by a large European manufacturing client and our decision not to pursue deals that didn't align with our return expectations. It also includes an expected 1.7% contribution from the Optimum Healthcare and Stratus acquisitions,” suggesting underlying weakness in the firm’s organic business.
Wipro saw a similar slowdown, but for different reasons. Pallia said “Clients are taking longer to make decisions as companies become more selective about technology spending,” adding that some large deals are also taking longer to ramp up. Consequently, Wipro guided Q2 revenue to grow in the range of -1.5% to 0.5% in constant-currency terms.
Even TCS saw its biggest market soften during the quarter. North America, its largest geography, weakened during the quarter, while consumer-facing businesses remained under pressure despite strength in BFSI and regional markets.
Tech Mahindra had a more confident outlook after delivering the strongest sequential revenue growth among its larger peers. Managing Director and CEO Mohit Joshi said the company has entered the final phase of its three-year turnaround plan, where the focus shifts from margin expansion to growth. “The company is positioned to grow faster than its peers in FY27,” Joshi said, adding that growth momentum is expected to continue through the remainder of the year.
HCLTech retained its FY27 revenue growth guidance of 1-4%. Managing Director and CEO C. Vijayakumar noted that the guidance reflects only organic growth and excludes acquisitions such as Jaspersoft.
IT clients are spending more selectively. The coming quarters will show whether demand broadens across industries and client segments, or if this is the new normal.
