AI, macro economic risks cloud Q1 outlook for IT cos

MOFSL REPORT | Soft demand, geopolitical tensions may hit earnings guidance

PTI New Delhi

The macro environment, artificial intelligence (AI), and geopolitical overhangs are likely to weigh on discretionary spending, decision cycles, and demand commentary for exports-led IT services firms, leading to a soft Q1 FY27 showing, Motilal Oswal Financial Services said. The firm added that it expects some companies to walk back the top end of guidance bands this quarter.

The latest note by Motilal Oswal highlighted that Accenture's recent commentary underlines slower decision-making and cautious discretionary spending, lending support to the expectation that demand recovery remains in flux.

Accenture, last month, narrowed its full-year 2026 revenue growth guidance to 3-4% from the earlier 3-5%, triggering a sharp decline in its share price and sending fresh jitters across an already-nervous global IT services industry that is confronting macro uncertainties and bracing for AI impact on legacy business models.

On Tuesday, KPIT Technologies said it expects the financial performance for Q1 FY27 to be lower than previously expected, owing to a sudden drop in revenues over the last few weeks. It warned of an expected decline of about 1% in USD-reported revenues for Q1 FY27 compared to Q1 FY26, primarily due to "sudden actions by some European OEMs triggered by their recent profit warnings and adverse business outlook".

"We expect demand commentary to stay soft in 1QFY27, as macro, AI and geopolitical overhangs continue to weigh on discretionary spending and decision-making cycles," Motilal Oswal said. Citing this backdrop, the firm pointed to tepid sequential growth for the tech stack in 1QFY27, with the soft start likely extending into 2Q FY27.

"With 1H tracking below the run-rate needed to sustain the upper end of FY27 guidance ranges, the ask on 2H to bridge the gap becomes increasingly impractical. We therefore expect companies to walk back the top end of their guidance bands this quarter," the report noted.

The brokerage expects Infosys to lower the upper end of its FY27 revenue growth guidance by 50 basis points to 1.5–3% year-on-year, while HCLT could trim the higher end of its services growth guidance by 100 basis points.

Nifty IT at five-year low

The Nifty IT hit a five-year low on Wednesday after brokerages took a cautious stance on the earnings of Indian information technology players. Brokerages expect the June quarter earnings of IT majors to be hit by macroeconomic challenges and risks posed by artificial intelligence (AI) advancement. The management commentary is expected to stay soft in the April–June period, according to brokerages.