Indian IT’s big boys admit concerns around AI-led deflation

Over the last two weeks, bosses of Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd have all pointed to AI squeezing revenues, and addressed concerns around higher productivity benefits. More AI tools mean lower human involvement, leading to lower billing rates and, ultimately, lower business. While companies expect increased tech work to offset the impact of AI, analysts expect that to be some time away.

On 9 April, the country’s largest IT services company first acknowledged AI-led deflation in its traditional services.

“You would expect AI revenues to increase going forward, along with some of the traditional revenues to slowly taper down and AI revenue to overcompensate for the reduction in the revenue in other parts of the service line,” said K. Krithivasan, chief executive of TCS, during the company’s post-earnings analyst call. The company reported $30.02 billion in revenue last fiscal, down 0.54% on a yearly basis. Its annualized AI revenue totalled $2.3 billion.

“So, the compression is coming on some of the services, and the growth is coming on other services, and the compression is typically in the areas where the AI foundation models and some of the tools are very efficient,” said Salil Parekh, CEO of Infosys, during the company’s post-earnings press conference on 23 April.

The arrival of AI models like Anthropic's Mythos, which can detect and fix software bugs with minimal human intervention, has prompted analysts to question the efficiency of the IT services work that companies like TCS and Infosys do.

HCLTech chief executive C Vijayakumar said the industry could face deflation of up 5%, acknowledging that this could increase, based on AI model enhancements. However, he dismissed any incremental impact on the work done by HCLTech.

“The latest model on Anthropic's Mythos, (its) ability to run production environment fixes without human-in-the-loop, is very limited. And this has been acknowledged even in their own release notes. It depends on the service mix (of the IT services company). For us, we called out 2% to 3% (deflation due to AI), and I think that holds true even now,” Vijayakumar said at an analyst call on 21 April.

Infosys and HCLTech ended last year with $20.16 billion and $14.66 billion in revenue, up 4.57% and 5.95% on a yearly basis, respectively.

On the other hand, during Tech Mahindra’s post-earnings analyst call on 22 April, CEO Mohit Joshi said the evolution of AI models is leading clients to question whether productivity benefits would ultimately increase.

While Wipro’s revenue declined for the third year in a row to $10.48 billion, Tech Mahindra overturned a two-year revenue decline to grow 1.9% to $6.39 billion.

Each of the companies said that a higher volume of work would offset AI deflation in future; however, analysts were not convinced as shares of TCS, Infosys, HCLTech, Wipro, and Tech Mahindra fell 2.45%, 7.09%, 10.85%, 2.78%, and 2.9%, respectively, a day after their earnings announcements.

“Infy (Infosys) expects volumes to remain flattish to marginally positive in FY27, which we interpret as an indication that AI-driven revenue is not expected to be meaningfully net additive to near-term growth, including in the context of renewals where scope expansion and volume uplift remain limited,” said BMO Capital Markets analysts Keith Bachman, Bradley Clark, Adam J. Holets, and Jonathan Stein, in a note dated 23 April.

A second brokerage voiced a similar perspective.

“We believe that AI/Gen AI will lead to compression of revenue for the industry in the next 24-36 months, as companies self-cannibalize to hold on to their existing clients,” said Bank of Baroda Capital Markets analysts Girish Pai and Lopa Notaria, in a note dated 22 April.

HCLTech pointed to slower growth of 1-4% for the current fiscal in constant currency terms, lower than its guidance from the year-ago period. It also highlighted four client-specific issues, such as delay in project ramp-ups, and a pull-back in tech spending. Wipro, too, expects delayed deal ramp-ups to result in a revenue decline during the April-June 2026 period, which is expected to hurt growth by upto 2% in constant currency terms. Constant currency does not take currency fluctuations into account.