Indian IT services companies are witnessing a fundamental transformation as artificial intelligence reshapes their revenue streams, talent strategies, and client engagement models. The latest quarterly results from industry leaders demonstrate how AI integration is becoming a strategic growth driver, even amid broader market uncertainties.

Infosys Leads with Strong AI-Driven Performance

Infosys delivered robust financial results for the third quarter of FY26, showcasing the growing impact of AI services on revenue generation. The company's performance highlights the shift toward higher-value engagements:

The revenue growth was primarily driven by stronger AI and cloud transformation deals across multiple client sectors. Infosys management emphasized large AI-led contract wins that deploy AI-centric platforms integrating data, workflows, and autonomous agents into enterprise environments. This demonstrates how AI services are becoming embedded in offerings that clients are willing to invest in, despite broader demand softness in traditional IT services.

TCS Shows Consistent AI Revenue Contribution

Tata Consultancy Services reported significant progress in AI service adoption during its third quarter results. The company achieved 5% year-on-year revenue growth, marking the first rebound in North American markets in two years. A key highlight was AI's contribution to the company's overall revenue profile:

The 5.8% AI contribution to TCS's annualized revenue run rate illustrates how even large organizations with extensive legacy business lines in application maintenance and infrastructure outsourcing are experiencing growing demand for AI services.

Campus Hiring Rebounds with AI Focus

After several years of cautious recruitment, both TCS and Infosys are planning significant fresher onboarding programs. The hiring strategy reflects the industry's recalibration toward AI-centric capabilities:

• Skill Emphasis: AI, cloud, security, and data-centric competencies
• Quality Focus: Higher expectations for talent capabilities beyond traditional programming
• Strategic Imperative: Acquiring AI-ready talent for future client demands
• Reskilling Investment: Upgrading existing staff capabilities for AI integration

However, this positive hiring outlook must be viewed within the broader labor market context. Industry surveys indicate that overall job openings in India's tech sector declined sharply in early 2026, suggesting that while AI-related demand is rising, broader hiring remains cautious due to cost discipline measures.

Market Dynamics and Competitive Positioning

The earnings commentary from both companies reveals a dual narrative in the current market environment. While companies express optimism about AI deal pipelines, they also acknowledge ongoing challenges including competitive pressure for specialized skills and margin impacts from labor code implementations.

Infosys specifically flagged the need for investment in reskilling existing staff and integrating AI tools, as clients now expect partners capable of embedding intelligence throughout business processes rather than simply providing traditional coding or service management.

Industry Transformation Outlook

The financial results indicate that Indian IT companies are successfully transitioning from volume-based services to value-based digital and AI integration offerings. Revenue expectations remain modest in aggregate, but the composition shows a clear shift toward higher-value engagements through AI-related services.

This transformation positions Indian IT firms to compete more effectively with global players like Accenture, which are similarly focusing on AI consulting and solutions integration as primary growth drivers. The competitive landscape is pushing Indian companies to strengthen their AI offerings, invest in cloud and platform provider partnerships, and retool their market approaches accordingly.

India's information technology sector is bracing for another challenging quarter as the country's leading IT firms prepare to report earnings amid persistent weakness in US demand and cautious client spending patterns. The December quarter results are expected to reflect the ongoing struggles facing the ₹283 billion Indian IT industry.

Expected Financial Performance

Brokerages anticipate that the top six IT firms by revenue will deliver modest growth figures for the December quarter. The performance outlook shows a continued deceleration from previous periods.

This represents a notable slowdown from the September quarter's 6.5% revenue growth, highlighting the prolonged demand softness affecting the sector. Indian software exporters last achieved double-digit revenue growth in the March quarter of 2023, when digital transformation and cloud adoption drove significant demand in the post-pandemic period.

Individual Company Projections

Tata Consultancy Services, the country's largest IT firm, will commence the earnings season on January 12. The company's performance is expected to reflect broader sector challenges.

Most brokerages do not expect HCLTech to upgrade its fiscal 2026 annual revenue forecast of 2%-3%, while Infosys is unlikely to raise its forecast of 3%-5%. The cautious outlook reflects the challenging operating environment facing the sector.

Market Challenges and Headwinds

The Indian IT industry continues to grapple with multiple macro headwinds that are impacting performance. Key challenges include:

• US Market Uncertainty: Concerns about US tariffs and proposed ₹8.3 lakh visa fees
• Client Spending Patterns: Subdued technology spending amid economic growth concerns
• Holiday Impact: Fewer working days due to global client holidays affecting billing and revenue
• Operational Pressures: Margin pressure from furloughs and wage hikes at major firms

The sector's heavy dependence on the US market makes these factors particularly significant, as Indian IT companies derive a substantial portion of their revenue from American clients.

Market Performance and Investment Flows

The challenging operating environment has translated into poor market performance for IT stocks. US tariff uncertainty, visa concerns, and weak spending patterns drove record foreign outflows of ₹8.5 billion from IT stocks in 2025, representing nearly half of total foreign exits from Indian equities. The Nifty IT index declined 12.6% in 2025, making it the worst-performing sector as Indian markets lagged behind Asian and emerging-market peers.

Future Outlook and Potential Catalysts

Despite near-term challenges, some factors could provide support for the sector moving forward. Resilience in the banking, financial services and insurance segment, deal ramp-ups, early signs of artificial intelligence strategy formation, and rupee depreciation could offer support by mid-2026, according to six brokerages. Additionally, brokerages expect AI momentum to build over the next six months, with demand potentially picking up into 2026, though clients remain cautious about committing to large programs amid macro and technological uncertainty.