India’s IT Services Sector Set for Recovery in FY27; Long-Term Growth Seen at 4–5%

New Delhi — India’s IT services sector is expected to stage a recovery by FY27, with its sustainable long-term growth stabilising between 4 to 5 per cent, according to a new report by HSBC Global Investment Research released on Friday.

The report noted that growth in the industry is unlikely to rebound in Q2 FY26 as demand remains muted, weighed down by macroeconomic uncertainties and the deflationary impact of artificial intelligence (AI).

“Recovery may only materialise in FY27 as global headwinds provide some cushion against pricing pressures,” HSBC said, adding that despite current challenges, it maintains a ‘buy’ rating on several IT stocks.

Growth in Q2 FY26 is projected to remain similar to Q1, largely driven by vendor consolidation and cost-rationalisation deals, which the research firm described as a “zero-sum game.”

Over the last three years, sector growth has lagged even the 4–5 per cent trendline, the report highlighted. While FY24 and FY25 were affected by the increasing shift of work to global capability centres (GCCs), FY26 has been constrained by both AI-driven deflation and an uncertain macroeconomic environment.

Despite stronger recent earnings from US corporates, discretionary spending on new projects remains subdued, the report added.

Looking ahead, HSBC forecast that:

• Large-cap IT firms could post 0–2 per cent sequential growth in dollar terms.

• Mid-tier firms may see a wider range of outcomes, from a 1 per cent decline to growth of 5.5 per cent.

The report also cautioned that large-cap IT stocks can no longer be treated as “five-year buy-and-hold compounding stories” and instead require active portfolio management in line with industry cycles and volatility.

With inputs from IANS