The Indian IT services sector is poised for a revenue recovery, with growth expected to hit 4-5% in FY27, according to a new report from HSBC Global Investment Research. This rebound is anticipated to drive high-single-digit growth in Earnings Per Share (EPS), signaling a shift from the sluggish performance of previous years.
Despite the positive revenue forecast, the report suggests that IT stocks—which have already climbed approximately 15-20% between October and December 2025—will likely perform in line with the broader market in 2026.
Yogesh Aggarwal, Head of Research at HSBC India, noted that current valuations already factor in much of the expected fundamental improvement. “IT is no longer a long-term double-digit compounding sector,” the report stated, highlighting that the sector has become more cyclical and requires active management to navigate volatility.
The projected upturn in FY27 is supported by several critical factors:
- Customer Confidence: Client commentary indicates a higher propensity to spend on IT as business outlooks stabilize globally.
- AI Integration: The deflationary impact of AI is becoming clearer, and the monetization of AI-driven business deals is nearing reality.
- Low Base Effect: After three years of “anaemic growth,” the sector is benefiting from a favorable comparison base.
The report cautioned that the third quarter of FY26 (3QFY26) remained impacted by seasonal weaknesses, making a positive surprise unlikely in the immediate term. However, Motilal Oswal Financial Services remains constructive on the medium-term outlook, citing increased global spending on digital transformation and efficiency-led AI adoption.
While the “AI overhang” is moderating, investors are advised to treat the sector as a cyclical play rather than a guaranteed long-term double-digit compounder.
Key Highlights:
- Revenue Growth: Indian IT sector revenue is forecasted to grow by 4-5% in FY27, supporting high-single-digit EPS growth.
- Stock Trends: IT stocks have gained 15-20% recently but are expected to perform broadly in line with the Nifty throughout 2026.
- Cyclical Shift: The industry is moving away from guaranteed double-digit returns, requiring more active cycle management by investors.
- AI Monetization: Growth is being fueled by stabilizing macro conditions and the transition of AI projects into revenue-generating business deals.