Indian IT Q4 earnings 2026: AI reshapes deals, pricing

What stood out in Q4 commentary

Ajay Rag, a tech journalist at AIM, told Front Page that the Q4 earnings season across Tata Consultancy Services (TCS), Tech Mahindra, HCLTech and peers is exposing a split between reported performance and stock-price reactions. He argued that headline numbers and market pricing are telling “two completely different stories”. In his view, investors are looking past near-term quarterly prints and focusing on how quickly artificial intelligence (AI) changes delivery economics and revenue models. That focus is also why deal closures, deal pricing, and AI-linked revenue disclosures are receiving disproportionate attention.

Why the stock market is reacting differently from headline results

A key tension is that traditional metrics such as reported revenue growth and margin stability do not fully capture the potential structural impact of AI on billable effort. Several analysts and brokerages have flagged deflationary risk for the sector, meaning downward pressure on pricing and revenue per unit of work. The concern is that AI compresses timelines and reduces the number of people needed for the same output, which can structurally lower billing rates and revenue per employee. That, in turn, can reduce long-term growth and returns on invested capital, and can affect valuation assumptions.

From labour arbitrage to AI: pressure from both ends

Rag said the labour arbitrage model that built Indian IT is now being attacked by AI “from both ends”. Client expectations are shifting toward faster delivery and measurable business outcomes, while AI tools automate routine tasks that once filled large teams and long project timelines. Application services such as software development, maintenance, testing, and system integration are described as the core revenue engine, accounting for about 40% to 70% of total revenues for India’s largest IT companies. When automation targets that revenue base, equity markets tend to reprice risk quickly.

Why outcome-based pricing is still moving slowly

Outcome-based pricing is widely discussed but remains hard to execute at scale. Rag linked the slow transition to incentives that still reward time-and-materials (T&M) contracts because they provide revenue predictability. He said a large deal signed on T&M terms still “books revenue predictability,” while outcomes can be difficult to sell internally to CFOs and hard to price accurately. In this framing, the shift becomes more likely only when AI automates enough of cost-based work that T&M becomes uncompetitive on deal pricing.

The demand cycle: strong years, then a slowdown

Between 2020 and 2024, Indian IT companies benefited from a surge in global tech spending driven by cloud migration and digital transformation. Momentum slowed in 2025 amid demand uncertainty, weaker earnings visibility, and cautious guidance. Deal closures were delayed or priced more aggressively, while wage inflation and higher onsite costs squeezed margins. Geopolitical tensions also reduced discretionary technology spending among major US and European Union (EU) clients.

Market impact: Nifty IT’s weak run and the February 2026 sell-off

The slowdown showed up in stocks as well. The Nifty IT index was the second-worst performer among the nine Nifty sectoral indices in 2025, falling 12.6%.

In early February 2026, sentiment worsened sharply. Between February 4 and February 8, 2026, about $10 billion in combined market capitalisation was erased from companies listed on the Nifty IT index, and the index fell 9.4% in that week. The immediate trigger cited was Anthropic’s launch of 11 new enterprise-focused plugins for its Claude AI platform, covering areas such as legal automation, contract review, compliance workflows, and software coding assistance. From February 3 to February 8, the Nifty IT index fell 19%, and it had already declined about 11% year-to-date before that week. During the sell-off, TCS fell 5.5% and Infosys dropped nearly 6%.

AI revenue disclosures and what they indicate

Nasscom projects India’s IT and technology industry will reach $115 billion in FY26, implying 6.1% growth, and estimates AI revenues of $10 billion to $12 billion. Nasscom also said net job additions were about 2,000 year-on-year in FY26.

Some large IT companies have started disclosing AI-linked revenue more clearly:

• TCS disclosed AI revenue at an annualised run rate of $1.8 billion.
• HCLTech reported AI revenue of about $1.146 billion, around 4% of topline, and said its advanced AI portfolio saw nearly 20% sequential growth.
• Infosys said AI now accounts for 5.5% of revenue, with the AI business generating $1.275 billion.

Separately, Gaurav Vasu, CEO and founder of UnearthInsight, said AI’s impact so far has been “cost absorption and margin protection, not revenue acceleration,” with efficiencies offsetting wage inflation and higher onshore hiring.

Deals are fragmenting, even as pipelines stay active

A second clear shift is how clients are buying. Indian IT companies are seeing large transformation contracts split into smaller, faster-to-execute phases, linked by executives to the way AI projects are adopted. Infosys said clients were prioritising shorter-cycle, high-ROI programs and taking a phased approach to large transformations, while also noting that volumes remained soft even as pipelines stayed active. TCS said decision cycles remained elongated and clients were approving programs in smaller chunks.

HCLTech reported Q3 FY26 bookings of $1.6 billion and said it crossed the $1.5 billion mark without a mega deal. In another disclosure, HCLTech said it signed $1.0 billion of new deal wins in the December quarter, including a five-year engagement with a global apparel retailer with a total contract value of $1.473 billion. Tech Mahindra announced a European telecom deal valued at over $1.5 billion. Wipro won a 10-year deal worth over $1.6 billion from Phoenix Group in March 2025.

Key numbers at a glance

What the shift means for investors and the sector

The core debate is no longer whether AI will be adopted, but how fast it changes pricing, effort, and contract structures. Outcome-based models may expand, but Rag’s point on incentives explains why T&M remains dominant in the near term. At the same time, brokerages’ deflationary-risk warnings and the sharp February 2026 sell-off show that markets are actively discounting the risk of revenue compression in the 40% to 70% application-services base.

Still, the article’s data also points to new revenue pools. Legacy code modernisation is framed as a $100 billion opportunity, and Nasscom’s FY26 projections suggest sector growth continues even as AI remains a “nascent” revenue stream. Investors, as Rag noted, are likely to keep tracking deal closures and disclosed AI-led revenue as leading indicators of who adapts fastest.

Conclusion

Q4 earnings discussions across Indian IT are increasingly shaped by AI-led disruption rather than just quarterly revenue growth. With deal structures shifting toward smaller phases and AI revenue disclosures becoming more common, the next set of earnings calls is likely to keep spotlighting deal flow, pricing models, and measurable AI monetisation.