HSBC Says Indian IT Loses Whether AI Spending Rises or Falls

HSBC no longer sees Indian IT services as an AI beneficiary. The brokerage, in a report covered by NDTV Profit this week, now calls artificial intelligence a structural challenge for India’s services sector, with pricing pressure expected whether global AI spending grows or slows. And the next test arrives on July 9, 2026, when Tata Consultancy Services reports first-quarter earnings (TCS Q1 FY27 preview from Sahi.com).

The framing matters because Indian IT had been pitched for years as one of the main external beneficiaries of the global AI build-out. HSBC’s new note says that read is wrong, with the brokerage quantifying how much of the sector’s revenue base is already under pressure. The data is firm enough that HSBC has now named a valuation floor.

HSBC’s New Call on Indian IT

HSBC’s central claim is that artificial intelligence is shifting from a growth driver to a structural challenge for India’s IT services industry. The note argues the sector faces pressure whether AI-led productivity gains show up first or AI-linked spending cuts show up first (HSBC’s full July 2026 call on Indian IT). AI tools shrink the billable hours for coding, testing, maintenance and migration, and a pullback in client AI budgets would tighten broader tech spending.

The brokerage’s framing is direct. HSBC put it in one sentence, leaving little room for the offset argument to revive.

AI adoption in tech won’t slow now.

This language is a clear break from earlier in 2026, when HSBC had still been telling clients at least part of the hit would be offset by stronger US client spending. In March, the brokerage wrote that “improving business outlook and AI-led productivity gains should drive incremental investment in enterprise software migration, legacy tech modernisation and AI adoption” (HSBC’s earlier, more measured March 2026 note on Indian IT), arriving at mid-single digit net growth for some firms. Four months later the offset is gone.

The Numbers Behind the Bear Case

HSBC put numbers on the call. The brokerage estimates that about 15% to 20% of industry revenue already reflects pricing pressure linked to AI. Another 35% to 40% could incorporate similar deflation by FY27, with the remaining impact likely to follow in FY28. The pacing turns what would have been a margin story into a multi-year price-compression curve.

HSBC’s growth framing sits well below the consensus that had supported Indian IT’s valuation before the AI repricing began. The brokerage expects industry growth in the low single digits through FY27, with improvement to the mid-single digits only in FY29 after what it called the current deflationary phase eases. On valuation, HSBC named a fair range of 12 to 13 times one-year forward price-to-earnings for the sector, tied to “greater clarity that pricing pressure has peaked,” a condition the brokerage does not yet see on the data. Until that condition arrives, the sector’s multiples have further to compress.

Source: HSBC reports covered by Economic Times CIO (March 10, 2026) and NDTV Profit (July 2026).

Why an AI Slowdown Won’t Fix It

The contrarian twist sits in HSBC’s view on what happens if AI spending cools.

Most coverage of Indian IT in 2025 and early 2026 has framed an AI investment pullback as a positive: if hyperscalers cut AI capex, traditional outsourcing demand revives. HSBC rejects that logic, writing that “any moderation in global AI investments and the AI narrative is not a positive read-across for Indian IT, in our view.” Lower AI returns would push clients to trim discretionary tech budgets, while productivity gains from deployed AI keep weighing on pricing for existing contracts. HSBC frames both effects as feeding into the same deflationary pressure on the sector.

HSBC’s note draws a line inside the AI spending pot. Infrastructure outlays tied to measurable returns should hold up. Spending on AI applications in business functions, which is harder to monetise, is the segment most at risk. Indian IT companies are exposed through that second bucket.

Infosys’s Chairman Has a Different View

The clearest public pushback to HSBC’s framing has come from Infosys. Chairman Nandan Nilekani told the company’s 45th Annual General Meeting on June 23, 2026, that AI would amplify the work of IT services firms, not replace them (Infosys chairman Nandan Nilekani’s ‘AI amplifies, not replaces’ AGM address). Nilekani argued that software development extends beyond writing code, into integration with existing technology, cybersecurity, testing, and architecture, areas where Indian IT firms have decades of expertise. The bullish case rests on a phrase Nilekani used twice in his address: the AI deployment gap.

The deployment gap is the distance between an AI model that works in a demo and one running inside a regulated enterprise, behind its cybersecurity stack, on top of existing data, and inside its governance framework.

• $20.2 billion in FY26 revenue for Infosys, up 3.1 per cent in constant currency
• 4,600+ AI projects underway under Infosys’s AI-First Value Framework
• $1 billion in annualised AI services revenue per CEO Salil Parekh at the AGM
• 1.5 per cent to 3.5 per cent FY27 revenue guidance in constant currency, below Infosys’s 3.1 per cent print for FY26

Infosys has also laid out a $300-400 billion AI-first services market forecast for 2030, drawn from a Nasscom-McKinsey report the company cited. The forecast is the spine of the firm’s AI-First Value Framework, built around six value pools: AI Strategy and Engineering, Data for AI, Process AI, Agentic Legacy Modernisation, Physical AI, and AI Trust.

The financials behind the pushback are not record-breaking. Infosys’s market capitalisation stood at ₹4.17 lakh crore as of June 23, 2026, the day of the AGM, and FY27 operating margin guidance of 20 to 22 per cent is roughly where the firm already was. The bear case has not gone away, and Infosys’s own conservative FY27 guidance is part of that record.

Q1 FY27 Now Has to Answer HSBC

HSBC had named the next catalyst before its July pivot. In March, the brokerage wrote that FY27 guidance from major IT companies in April was the most important catalyst for the sector. That catalyst has already come and gone. The next one is the Q1 FY27 print run, opening on July 9, 2026 with Tata Consultancy Services, followed by Infosys, Wipro and HCLTech in the weeks after.

Brokerage expectations for that print run are already cautious. Motilal Oswal expects large-cap IT firms to post constant-currency revenue growth in the range of -1.5 per cent to 2 per cent sequentially, with no major firm expected to print meaningfully above trend. The Economic Times has published separate figures by name. Kotak Equities flags the West Asia crisis and AI-led deflation as the main drags on prints.

• Tata Consultancy Services: flat revenue (per Economic Times Q1 FY27 preview)
• HCLTech services: -1 per cent expected
• Wipro: -1.1 per cent expected
• Tech Mahindra: +1 per cent expected
• Infosys: +1 per cent organic growth expected

The Q1 FY27 readings will arrive inside the band HSBC named for the deflationary phase. The read investors want from each commentary is how much of HSBC’s deflation thesis is already in the prints, and how much is still to come.

Hiring Is Now Tied to Project Demand

Indian IT’s hiring machine is starting to move in the same direction as HSBC’s pricing call. Tata Consultancy Services told PTI in April 2026 that it had made 25,000 fresher offers for FY27, down from 44,000 in FY26, a 43 per cent cut in a single year. Wipro’s campus intake has gone from 19,000 freshers in FY22 to about 10,000 in FY25 and to 7,500 in FY26. Tech Mahindra took what one news report described as a “pause” on fresher intake in FY26, citing the AI-driven shift in the demand profile (how Indian tech firms cut fresher intake as hiring thinned).

Indian IT is matching the pricing call on the demand side. TCS has dropped about 56 per cent from its August 2024 all-time high of Rs 4,592.25 to Rs 2,033 in the run-up to its July print, contributing to a combined market-cap loss estimated at more than Rs 17 lakh crore across 10 major IT companies. India’s active tech job openings fell to 93,000 in June 2026, the largest single-month drop in 12 months and the weakest reading in 28 months, according to Xpheno’s Active Tech Jobs Outlook. Entry-level roles led the slide, down 44 per cent year-on-year to 10,000 openings, while mid-senior roles accounted for 46,000 of the 93,000 total. The mix inside that 93,000 number is what HSBC’s 12 to 13 times forward earnings floor is calling.

HSBC’s note carries one explicit condition: a re-rating above 12 to 13 times forward earnings waits on investors getting clarity that AI-led pricing pressure has peaked, and the Q1 FY27 prints starting July 9, 2026 are the first real chance to give it to them.

Frequently Asked Questions

What is HSBC’s new view on Indian IT?

HSBC, in a report covered by NDTV Profit in early July 2026, calls artificial intelligence a structural challenge for India’s IT services sector rather than a growth driver. The brokerage expects pricing pressure whether global AI spending continues to grow or slows.

How much of Indian IT’s revenue is already under AI pricing pressure?

HSBC estimates that about 15 per cent to 20 per cent of industry revenue already reflects AI-linked pricing pressure. Another 35 per cent to 40 per cent could incorporate similar deflation by FY27, with the remaining impact arriving in FY28.

Will an AI spending slowdown help Indian IT?

HSBC says no. The brokerage argues that lower returns from AI investment would push clients to trim broader tech budgets, while productivity gains from AI already deployed keep compressing pricing on existing contracts. The two effects feed the same deflationary pressure in HSBC’s framing.

Which firms have publicly pushed back on HSBC’s call?

Infosys chairman Nandan Nilekani told the company’s 45th Annual General Meeting on June 23, 2026 that AI amplifies rather than replaces the work of IT services firms, citing deployment gaps in regulated enterprises as the durable opportunity. Infosys is also guiding FY27 revenue growth to 1.5 per cent to 3.5 per cent in constant currency, a band that sits within HSBC’s low-single-digit sector forecast.

When does the market test HSBC’s thesis next?

The Q1 FY27 earnings season opens with Tata Consultancy Services on July 9, 2026, followed by Infosys, Wipro and HCLTech in the weeks after. Broker expectations already sit near flat for the season, with Motilal Oswal modelling constant-currency growth between -1.5 per cent and 2 per cent sequentially.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Figures, forecasts and valuations are accurate as of publication and may change. Consult a qualified financial advisor before making any investment decision related to Indian IT stocks.