Indian IT stocks have experienced a significant downturn, plummeting up to 33 per cent year-to-date in 2026, as the rapid advancement of artificial intelligence fundamentally reshapes the traditional outsourcing model, prompting analysts to forecast a challenging financial year 2027 for the sector.
Illustration: Dado Ruvic/Reuters
Key Points
- Indian IT stocks have fallen up to 33 per cent year-to-date in 2026, significantly underperforming the Nifty 50, primarily due to AI’s impact on traditional outsourcing.
- Despite strong deal pipelines, revenue conversion remains slow due to pilot-led deployments, elongated decision cycles, and execution delays, leading to market caution.
- Global enterprises are redirecting technology budgets towards AI infrastructure and software, leaving less for traditional IT services, which is slowing growth and increasing competition.
- Analysts expect FY27 to be a challenging year for IT stocks, advising patience for a sustainable rebound as the industry reshapes faster than revenue growth.
- Despite short-term disruption, opportunities exist in AI data architecture, workflow agents, and governance, with experts suggesting large-caps for stability and mid-caps like Persistent and Coforge for AI monetisation.
Information technology (IT) stocks have plummeted up to 33 per cent year-to-date in 2026, compared to Nifty 50″s 8 per cent drop, as artificial intelligence (AI)-led growth has disrupted the traditional outsourcing model.
However, tailwinds from the rupee”s depreciation against the US dollar (down 6.6 per cent in calendar year 2026, or CY26) has provided some cushion.
Analysts say investors expecting a sustainable rebound may need patience, as AI is reshaping the industry faster than revenue growth is catching up.
Against this backdrop, they expect (FY27) could be a tough year for IT stocks. However, identifying the exact bottom may not be the right approach.
AI’s Impact on Revenue Conversion
“Despite strong deal pipelines and rising total contract values (TCV), conversion into revenue remains slow due to pilot-led deployments, elongated decision cycles, and execution delays.
“As a result, the market remains cautious, with earnings lagging the AI narrative,” said Manav Medewala, research analyst at Mirae Asset ShareKhan.
Investors, meanwhile, dumped Indian IT stocks as global enterprises redirected technology budgets toward AI infrastructure, models, and software rather than traditional outsourcing and application maintenance — the core revenue pool for Indian IT.
Though enterprises are spending more on AI infrastructure, including GPUs (Graphics Processing Units), software, and models, overall technology budgets are not expanding at the same pace.
“So, less money is left for traditional IT services companies.
“As a result, growth is slowing down, competition is rising, and consumption and pricing are under pressure,” said Sumit Pokharna, vice-president (V-P), fundamental research at Kotak Securities. While global technology spending continues to grow at 10-13 per cent, Indian IT services growth has slowed to around 3-4 per cent, he added.
Company Performance and Future Outlook
During the fourth quarter of 2025-26 (Q4FY26), TCS reported deal wins of $12 billion, taking FY26 TCV to $40.7 billion.
Revenue rose 5.4 per cent sequentially in rupee terms, while annualised AI revenue crossed $2.3 billion.
Likewise, Infosys signed 96 large deals worth $15 billion in FY26, up 28 per cent year-on-year (Y-o-Y), and guided for 1.5-3.5 per cent revenue growth in FY27, with operating margins of 20-22 per cent.
While Infosys sees a large opportunity across AI strategy, data, legacy modernisation, and trust-led AI services, supported by platforms such as Topaz and Cobalt, the management also cautioned that productivity gains from AI would increasingly be shared with clients due to competitive intensity.
HCLTech reported annualised advanced AI revenue of $620 million, while FY26 services revenue grew 4.8 per cent in constant currency.
Among midcap companies, Coforge reported 36 per cent revenue growth and 92 per cent growth in profit in FY26, backed by a $1.75 billion executable order book.
Persistent Systems delivered 25 per cent annual revenue growth despite moderation in momentum.
Investment Strategies Amidst Disruption
Beyond the short-term disruption, Pokharna of Kotak Securities sees opportunities in areas such as AI data architecture, AI workflow agents, and AI governance, as most enterprises globally still operate on legacy systems.
Notably, Indian IT companies have historically demonstrated strong adaptability through multiple technology transitions, including outsourcing, cloud, and SaaS (software as a service) adoption.
“While the current AI transition is more structural in nature, it would be premature to discount the sector”s ability to evolve once again,” said Anshul Jethi, research analyst for IT at LKP Securities.
Even though good-quality stocks are available at reasonable valuations, one doesn”t know how long it will take for earnings to improve, said Pokharna.
He, however, picked Infosys, TCS, and Coforge as his preferred bets. Investors with a higher risk appetite and a long-term investment horizon may consider incremental additions to existing positions, said Jethi of LKP Securities, adding that initiating fresh large positions is not advisable.
HCLTech and Persistent Systems are his preferred picks in the IT pack.
“Amid long-term growth opportunities and near-term execution challenges, investors may consider largecaps for stability and midcaps like Persistent and Coforge for sharper AI monetisation,” suggested Medewala of Mirae Asset ShareKhan.
