IT firms return ₹1.3 tn in FY26 despite AI headwinds

Record FY26 cash returns across India’s top IT pack

India’s top 16 IT services companies paid shareholders a record ~₹130,000 crore in FY26 through dividends and share buybacks, even as artificial intelligence (AI) models challenged traditional delivery and pricing structures. The headline number marks a sharp acceleration in capital returns at a time when profit growth and market valuations have faced pressure across the sector. The payout was 36.3% higher than the ~₹95,400 crore distributed in FY25. Industry payout growth in FY26 was the fastest in nine years, reversing the tone of FY25 when payouts fell 10.6% as companies prioritised retaining profits amid slower revenue and earnings growth.

What changed from FY25 to FY26

FY25 was framed by caution, with many IT firms choosing to conserve cash as demand softened and guidance turned conservative. In FY26, the sector shifted gears, using dividends and buybacks more aggressively. The change coincided with weaker share price performance and a decline in market capitalisation across several IT names, which can make buybacks more attractive for companies seeking to optimise capital structure. It also reflected a clear attempt to support shareholder returns while the sector absorbs the implications of AI-led productivity gains and shifting client spending priorities.

Buybacks did the heavy lifting

The jump in FY26 shareholder payouts was largely driven by buybacks. Infosys completed its biggest-ever share buyback worth ₹18,000 crore in November. Wipro announced a ₹15,000 crore buyback, to be completed later in the year. Among mid-tier firms, Cyient announced its biggest buyback worth ₹720 crore, also slated for completion later in the year. In total, the industry is set to spend ₹33,895 crore on buybacks for FY26, making it the second-best buyback year since FY24, when companies spent ₹38,300 crore.

Dividends were nearly flat, and TCS cut payouts

While buybacks surged, equity dividends rose only 0.7% to ₹96,102 crore in FY26 from ₹95,401 crore in FY25. Tata Consultancy Services (TCS), historically the biggest payer in the industry, reduced its dividend payout by 12.7% to ₹38,820 crore in FY26 from ₹45,612 crore in FY25. The company’s rationale, as reported, was a sharper focus on investments in data centres and AI businesses. TCS also did no share buybacks in the last two financial years, meaning a larger share of FY26’s incremental payout momentum came from other large caps.

Payouts exceeded profits for the first time in this sample

A key datapoint in FY26 is that payouts rose beyond annual net profit for the set of companies tracked. The payout ratio for the 16 companies in the Business Standard sample increased to a record 102.2% of reported net profit in FY26, up from 77.7% in FY25. The ratio had earlier fallen in FY25 from 93.9% in FY24. This matters because it signals how strongly capital-return decisions can diverge from near-term earnings trends when management teams want to maintain shareholder confidence.

AI disruption and the demand-quality debate

The record payouts arrived alongside a tougher operating backdrop. Analysts have pointed to AI as a force that could reshape legacy IT services work, putting pressure on some traditional revenue lines. Kotak Institutional Equity analysts wrote that AI spending is crowding out IT services spend, even as total tech spending grows at an accelerated pace. The same note flagged the impact of “AI deflation” and timing lags in new programmes, contributing to weaker-than-expected growth guidance across the sector.

Q4FY26 results: profits up, visibility questioned

Q4FY26 results reinforced a split investors have been tracking: deal pipelines may be holding up, but near-term growth visibility is uncertain. Infosys reported Q4FY26 net profit of ₹8,501 crore (up 20.9% year-on-year) and revenue of ₹46,402 crore (up 13.4% year-on-year). TCS posted net profit of ₹13,718 crore, with revenue rising 5.4% quarter-on-quarter to ₹70,698 crore and EBIT margin at 25.3%. HCL Tech reported revenue of ₹33,981 crore and net profit of ₹4,488 crore.

Market reaction: payouts did not fix weak sentiment

Despite the stepped-up distributions, market performance remained soft. A continued poor showing on the bourses suggested that higher payouts were having limited impact on sentiment, with investors focused on revenue momentum and AI-linked shifts in pricing and demand. On April 24, Infosys shares were reported trading over 5% lower after its results, with market participants pointing to a cautious outlook. Separately, Reuters reported the Nifty IT index, described as the worst-performing sector of 2026, shed roughly $16 billion in market value in a week after earnings from TCS and Infosys disappointed investors.

What analysts said about the payout strategy

G Chokkalingam, founder and CEO of Equinomics Research, linked the payout spike to shareholder wealth erosion following share price declines, saying companies appear motivated to reward investors during the drawdown. The competing view is that capital returns cannot substitute for growth, especially if clients delay discretionary work and shift budgets toward AI programmes. Reuters also cited a view that AI revenue is growing quickly but remains small in mix, with Centrum Broking’s Piyush Pandey stating AI is “hardly 5% of total revenue,” while also weighing on pricing in legacy contracts.

Key numbers at a glance

Q4FY26 snapshot (selected companies)

Conclusion

FY26’s ₹130,000 crore payout by India’s top IT services companies highlights a clear shift toward shareholder distributions, powered mainly by buybacks at a time of weaker sector sentiment. But the same period also shows why the market’s focus has stayed on demand quality and growth guidance, as AI changes spending priorities and deal economics. For investors, the immediate watchpoints remain the completion of announced buybacks, the sector’s ability to convert deal pipelines into revenue, and how companies balance AI investment needs with continued capital returns.