The Great Indian IT Reset: Sector Movements and Outlook (June 2026)

On the last trading day of June 2026, India’s IT pack did something it hasn’t done in three years: it sank to a fresh low and kept falling. This isn’t a one-day wobble. It’s the visible surface of a much deeper question hanging over India’s $300-billion-plus IT services industry: in a world where artificial intelligence can write, migrate, and maintain code, what exactly are five million Indian engineers being paid to do? The market, right now, isn’t sure of the answer — and it’s voting with its feet.

Here’s where things actually stand, why they got here, and what to watch next.

The movements: how deep is the damage?

The numbers are stark. The Nifty IT index has fallen roughly 42% from its all-time high of around 46,089, set in December 2024, and is now trading close to levels last seen in April 2023. On a year-to-date basis it is down about 29% in 2026 — a brutal underperformance against the Nifty 50, which has slipped only around 6%.

The clearest sign of how far IT has fallen out of favour comes from its shrinking footprint in the broader market. According to Bloomberg data cited by Business Standard, the combined weight of the five largest IT firms in the Nifty 50 has dropped below 7.6% — the lowest in more than two decades. At their peak in the early 2000s, these same companies made up more than a fifth of the benchmark. The sector that once was the Indian stock market story has quietly become a sideshow.

June itself was a roller-coaster that captures the mood perfectly:

• Early June saw a brief, sharp relief rally. Strong results from US software names — Salesforce reporting double-digit revenue growth, Snowflake’s product revenue surging — briefly revived hopes that enterprise AI spending would flow through to Indian vendors. The index jumped, then immediately gave it all back the next session as institutions used the bounce to book profits.
• 19 June brought the real blow. Accenture — the global bellwether for IT services demand — fell about 18% on Wall Street after trimming its full-year revenue growth guidance to 3–4% (from 3–5%), citing weakness in its US federal-government business and a year-on-year dip in new bookings. Indian IT ADRs cratered overnight, and the Nifty IT index crashed almost 6% the next day to a fresh low.
• End of June has seen no recovery — just a grind to new lows, compounded by fragile US–Iran ceasefire headlines and broader risk-off sentiment.

When the sector’s most respected global peer cuts guidance and blames soft demand, investors read it as a signal for the entire industry. Brokerage Kotak Institutional Equities summed up the Accenture print bluntly, noting it offered no relief to a sector already weighed down by multiple headwinds and the risk of sharper AI-driven deflation.

Why is this happening? Four forces at work

1. The elephant in the room: AI disruption

This is the story beneath every other story. For two decades, the Indian IT model evolved from labour arbitrage to custom development to the genuinely profitable part — long-running application maintenance and modernisation contracts that billed, predictably, year after year. That annuity is precisely what agentic AI now targets.

Hyperscalers are automating the work Indian firms used to bill by the hour. Amazon’s AWS Transform, an agentic modernisation platform, has reportedly pushed more than 1.1 billion lines of code through its system and saved over 810,000 hours of manual effort, running legacy migrations up to four times faster. Tellingly, the Indian majors are publishing the same kind of numbers themselves: Infosys has described moving three million lines of a client’s COBOL code into a modern microservices environment at roughly 60% lower cost and on a 60% shorter timeline. When your own marketing brags about doing the work with far fewer people, investors do the math on what that means for revenue.

The industry now broadly accepts a sobering near-term figure. HCLTech’s CEO has publicly modelled AI causing an estimated 2–3% annual deflation across traditional services for the next couple of years, and several analysts use the same range. Infosys, when it guided for FY27, explicitly named AI productivity compression as a force working against its growth.

The human cost is already showing up in hiring. India’s top five IT firms collectively cut about 6,981 jobs in FY26 — a sharp reversal from the roughly 12,700 net additions the year before. TCS, which typically hired around 40,000 freshers a year, has signalled plans for closer to 25,000. Cognizant has flagged plans to remove 12,000–15,000 roles in an AI-led restructuring that falls hardest on its India workforce. The market got a vivid early preview of this anxiety back in February, when the launch of a new agentic AI product designed to automate high-volume knowledge work sent the IT index down nearly 6% in a single stretch.

2. Weak demand from the West

Strip away AI for a moment and the cyclical picture is still soft. The US accounts for more than half of revenue at most large Indian IT firms, and US clients have spent the year prioritising cost optimisation over new digital projects. Deal pipelines have thinned, and decision-making has slowed. For context: the sector last reported double-digit revenue growth all the way back in the March 2023 quarter. Analysts at Anand Rathi expect the top five to manage only about 3–4% revenue growth in the near term.

3. Macro and geopolitical headwinds

Higher-for-longer US interest rates are a structural negative for growth stocks like IT, since they reduce the present value of future earnings. Layer on persistent uncertainty around US immigration policy and H-1B visas, tariff noise, an unsettled Middle East, and steady foreign institutional outflows from Indian equities, and you have an environment where investors prefer domestic-facing sectors over export-dependent ones.

4. The rupee — the one quiet tailwind

It’s not all working against the sector. The Indian rupee has weakened materially against the US dollar, and because these firms earn in dollars but report in rupees, that translation provides a genuine, if unglamorous, boost to reported revenue and margins. It’s the main reason several companies are still expected to post double-digit rupee earnings growth even as dollar revenue growth stays muted.

The other side of the trade: why it isn’t all doom

A balanced view has to acknowledge the bull case, because it’s more substantial than the headlines suggest.

Global IT spending is, in fact, booming. Gartner’s latest forecast pegs worldwide IT spending at $6.31 trillion in 2026 — up 13.5% year-on-year, an upward revision from earlier in the year. But here’s the crucial nuance, and the heart of the whole debate: that growth is wildly uneven. It’s a “multi-speed market.” The money is pouring into AI infrastructure and hyperscaler capex — data-centre systems spending is forecast to grow nearly 56% — and into GenAI software, not into the labour-based application services Indian firms have historically sold. The pie is growing fast; Indian IT just isn’t standing under the part that’s expanding. (For what it’s worth, Gartner separately projects Indian domestic IT spending to exceed $176 billion in 2026, with local IT-services growth around 11%.)

AI is also the opportunity, not just the threat. The same disruption that’s compressing legacy revenue is expected to open an enormous new market. An incremental AI-led addressable market of $300–400 billion for Indian IT services by 2030 — against a current industry size of roughly $280–315 billion. The early revenue is already real: TCS reported over $2.3 billion in annualised AI services revenue in early 2026 (about 7.5% of its total, up from $1.8 billion the prior quarter); Infosys says it’s doing AI work for 90% of its 200 large clients; HCL’s AI business, while only about 4% of revenue, is growing around 20% quarter-on-quarter.

The repositioning is underway. TCS chairman N. Chandrasekaran told shareholders at the June AGM that AI is the biggest growth opportunity in the company’s history — predicting TCS will eventually run as many AI agents as it employs people, and that governing those AI systems will become the next recurring revenue annuity. The strategic logic across the industry is similar: stop reselling the agents the hyperscalers built, and instead win on what’s genuinely defensible — deep domain knowledge, industry-specific workflows, regulated AI operations, and the messy, context-heavy work of making AI actually function inside a real enterprise’s decades of legacy systems and compliance requirements. This, notably, puts Indian firms in more direct competition with Accenture, Deloitte, and McKinsey than ever before.

Valuations have reset hard. After a roughly 40% drawdown, the Nifty IT index trades at a price-to-earnings ratio of around 20–22x — below its three-year average — with individual names ranging from Wipro near 16x to Persistent Systems above 40x. For long-term investors, a structural-but-survivable disruption combined with washed-out valuations is exactly the kind of setup worth watching, even if the timing is uncertain.

The next catalyst: Q1 FY27 earnings season

The headline revenue numbers will matter less than the commentary. The things that will actually move stocks: full-year FY27 revenue and margin guidance, the size and quality of large-deal bookings (TCV), management’s read on the US demand environment, hiring plans, and — above all — how concretely each firm can translate AI talk into booked deals rather than productivity giveaways.

Expectations are already low, which cuts both ways. Going into the season, Infosys has guided to just 1.5–3.5% revenue growth for FY27, Wipro to a range of roughly –2% to +2% for the quarter (implying possible share losses and delayed deal ramps), and HCL toward 4–6%. A low bar means even modest reassurance could spark a relief rally; another guidance disappointment risks a fresh leg down.

The outlook: a multi-year transition, not a quick bounce

Putting it all together, the honest near-term picture is cautious. The consensus has shifted decisively from “buy the dip” to “be selective.”

The most common framing is that the sector is in the middle of a painful but ultimately constructive restructuring.

The bear case is straightforward: AI structurally deflates the core business faster than new AI revenue can replace it, US demand stays soft, and earnings estimates keep getting cut. The bull case is that valuations have already discounted a lot of pain, the rupee keeps cushioning earnings, global IT budgets are expanding rapidly, and the very firms being disrupted are also the ones best placed — through domain depth and client relationships — to capture the much larger AI-services opportunity over the next three to five years.

The truth almost certainly lies in the messy middle: a genuine, multi-year transition in which the industry shrinks its old labour-arbitrage annuity and rebuilds around AI governance, consulting, and outcome-based work. That’s survivable, even promising, for the firms that adapt. It’s just not the smooth, predictable compounding machine that made Indian IT a portfolio darling for twenty years — and the market is repricing accordingly.

For now, the watchword is patience. The July earnings season, and specifically what management teams say about FY27 demand and AI monetisation, will tell us whether June’s lows were the bottom of a cyclical trough or merely a waypoint in a longer structural reset.

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