An End to the Growth Slump?
For the past several quarters, the narrative surrounding the Indian IT sector has been one of caution. Macroeconomic uncertainties, geopolitical tensions, and weak discretionary spending from clients in key markets like the US and Europe led to muted
revenue growth. Companies that were once darlings of the stock market faced project delays and pricing pressures. However, the latest earnings season for the quarter ending June 2026 suggests a potential turning point. While some analysts still predict subdued growth for the fiscal year, the conversation is shifting from decline to stabilisation, thanks to a powerful new growth engine: enterprise AI.
AI Graduates from Experiment to Enterprise
For years, companies worldwide have been experimenting with AI in pilot projects. Now, that phase is giving way to large-scale implementation. Businesses are moving beyond chatbots and are integrating AI into core operations, from modernising legacy systems to enhancing cybersecurity and creating industry-specific solutions. According to industry body Nasscom, India's technology sector is already generating an estimated $10-12 billion in revenue from AI services, with nearly a quarter of tech companies moving AI projects into full production. This transition is creating a massive new market for IT services firms, who are essential partners in deploying these complex technologies at scale.
How the IT Giants Are Cashing In
India's largest IT firms are actively pivoting to capture this demand. Tata Consultancy Services (TCS) reported that its AI business has reached a $2.6 billion annualised revenue run-rate in the first quarter of FY27, a significant jump. The company has secured major AI-led transformation deals, including a notable one with Swedish manufacturer SKF to build an "AI-first" digital core. Similarly, Infosys is driving its AI agenda through its Topaz platform, which is designed to help businesses accelerate their AI adoption. As of late 2025, AI-related work already accounted for 5.5% of Infosys's revenue, with the company providing AI services to the vast majority of its top clients. Other major players like Wipro and HCLTech are also heavily investing in their AI capabilities and partnerships to meet the growing demand.
It's About Integration, Not Just Projects
The nature of the new AI deals is also evolving. Clients are no longer just buying standalone AI projects; they are investing in AI-led operational transformations. This means integrating AI across the entire business, from IT operations and software engineering to grid management and customer experience. This shift plays to the strengths of Indian IT firms, which have deep experience in managing complex, large-scale enterprise systems. Rather than being replaced by AI platforms, these companies are becoming crucial implementation partners, helping clients with data governance, systems integration, and managing the AI models responsibly. This more integrated approach is creating larger, multi-year contracts that provide more stable revenue streams.
Cautious Optimism Remains the Watchword
Despite the positive momentum in AI, challenges remain. A CRISIL Ratings report noted that weak discretionary spending and geopolitical uncertainties will continue to weigh on overall demand. The report suggests that while AI adoption presents new opportunities, it also challenges traditional revenue models by creating pricing pressure. First-quarter results from some companies reflect this mixed environment. For example, Wipro's profits were largely flat year-over-year, and TCS also reported flat sequential revenue growth, indicating the recovery is nascent and not yet universal. Therefore, the outlook is one of cautious optimism. AI is providing a much-needed tailwind and a path to future growth, but the broader economic headwinds have not completely disappeared.
