India's information technology (IT) services sector posted Q2 FY27 results that modestly surpassed subdued expectations, yet the broader demand recovery is increasingly being deferred to FY28, as companies grapple with persistent pricing pressure and accelerating AI-driven disruption, according to a report released on 6 November 2026.

What the Numbers Show

The report by BNP Paribas India analysed quarterly results from 15 Indian IT services companies, covering five large-cap and 10 mid-cap firms. Shares of the covered companies rose by a median 5% following the results, partially recovering from a steep 23% year-to-date decline in 2026.

Collectively, 60% of the firms beat revenue expectations, while 53% exceeded EBIT margin forecasts. On the other side, 27% missed on revenue growth and 40% fell short of EBIT margin expectations — a split scorecard that underscores the uneven recovery across the sector.

AI Disruption and Pricing Pressure Reshape the Outlook

'While FY27 headline revenue growth guidance cuts seemed modest, the organic cut was sharper, implying that FY27 organic revenue is likely to trail FY26, with acquisitions filling in the gap partly,' the BNP Paribas India report stated.

The report further noted: 'AI-led work continues to grow even as clients demand pass-back of the productivity gains, shrinking the legacy books and pushing down pricing pressure. With seasonally weak H2 FY27, companies now expect recovery in FY28, supported by large deal ramp-ups.'

This dynamic — where AI productivity gains accrue to clients rather than vendors — is structurally compressing margins on traditional service lines, even as new AI-related workstreams expand.

Deal Wins and Demand Trends

Deal Total Contract Value (TCV) inched up modestly on an annual basis in Q2 FY27, driven primarily by strong wins at three companies. Headcount rose slightly on a sequential basis, while attrition rates and utilisation levels improved modestly — suggesting operational stability even if top-line momentum remains elusive.

Demand remains steady but narrow in scope, with the financial services vertical emerging as the standout bright spot. The market rewarded firms that delivered better-than-feared revenue, margin expansion, and robust deal pipelines, while penalising those with margin pressure and weak deal wins.

Client Caution on Large-Scale AI Rollouts

A separate recent report highlighted that management commentary across nearly all major Indian IT companies during the Q1 FY27 earnings season revealed cautious client behaviour. Clients reportedly demanded measurable outcomes, stronger governance frameworks, and more robust data foundations before committing to large-scale AI rollouts — a pattern that continues to delay conversion of AI interest into billable revenue.

With H2 FY27 expected to remain seasonally soft, the sector's near-term trajectory hinges on whether large deal ramp-ups materialise on schedule and whether client AI commitments translate into meaningful contract signings heading into FY28.