Sumeet Jain, analyst at CLSA India, told ET Now that while the overall macro environment is marginally better than last year, meaningful revenue reacceleration remains elusive. TCS, for instance, is expected to deliver sequential constant currency growth of just 1% to 1.25% — a modest showing that reflects broader hesitation in discretionary IT spending.
Macro uncertainty remains the dominant risk
Jain pointed to the ongoing West Asia conflict, sticky inflation, and elevated US bond yields as the primary headwinds. “The overall macro is still dependent on the discretionary demand revival, maybe going into the mid-term elections in the US,” he said. CLSA has already trimmed its constant currency growth forecasts for large-cap IT firms by one to two percentage points, pulling estimates down from an earlier range of 5–7% for FY27.
The travel, transport, hospitality, consumer discretionary, and energy utility verticals are expected to see the sharpest pullback in near-term IT spending. Several companies also reported delayed client decision-making in March, and the number of deal wins announced in the March quarter was notably lower than in the December quarter.
BFSI holds up, but caution prevails
Despite regulatory guardrails, the banking, financial services, and insurance sector continues to show resilience. Jain noted that US loan growth in January–February was stronger than the same period in the previous calendar year, supporting BFSI-related IT demand. Globally, Accenture’s managed services order book rose year-on-year in its most recent quarter — a signal, Jain argues, that AI-led revenue deflation is not yet materialising in a meaningful way for large IT vendors.
AI: Opportunity or overhyped threat?
The debate over how artificial intelligence will reshape IT billing models remains front and centre. Jain acknowledged a gradual shift toward outcome-based and fixed-price contracts, but stressed that time-and-material billing is far from obsolete. “Both buyers and sellers try to maintain a balance,” he said, adding that hybrid pricing models — combining outcomes, token consumption, and markup margins — will likely coexist for years.
Crucially, Jain does not yet see hard evidence of AI causing revenue deflation on the ground. The three metrics he urges investors to watch closely are order book growth, revenue per employee, and EBIT margins. Companies where all three are trending upward are, in his view, genuinely winning in the AI cycle.
Mid-caps steal the spotlight
While large-caps like TCS, Infosys, and Wipro face earnings estimate cuts, Jain is more bullish on mid-tier players — specifically Persistent Systems and Coforge. Both companies carry a “high conviction outperform” rating at CLSA. Jain credits their management teams for consistent market share gains over the past six to eight years and for actively pivoting toward AI agent-based delivery, proprietary IP, and proactive client engagement.
“Here, you have to shift your mindset from a request-for-proposal driven approach to proactive selling where both domain and technical expertise matter,” he said.
Currency: A tailwind with caveats
Rupee depreciation provides a profitability buffer, but Jain cautions that foreign institutional investors benchmark performance in dollar terms, not rupees. Hedging losses below the EBIT line could partially offset gains, and constant currency growth remains the metric that actually moves IT sector valuations.
The sector’s near-term fate, Jain concludes, hinges far more on when global macro conditions stabilise than on any AI-driven structural shift — at least for now.