Indian IT stocks are coming under renewed scrutiny as HSBC Global Investment Research warns that the AI-driven rally powering the sector over the past year may be losing momentum. The brokerage highlighted that the ‘AI narrative’ that boosted IT valuations is beginning to fade, largely due to the lack of large-scale real-world AI deployments capable of offsetting declines in traditional software spending. With investor optimism around AI cooling, attention is expected to shift toward realistic earnings guidance from major IT companies such as Infosys and HCLTech, which could shape sentiment for the upcoming fiscal year.

HSBC emphasized that without substantial incremental demand from AI adoption, the technology risks cannibalising traditional software revenues rather than generating new income streams. As a result, market focus is likely to pivot from AI hype to company-level visibility on earnings and demand trends. Analysts suggest that investors will closely watch how management teams navigate this transitional phase, particularly with regard to delivering credible guidance and highlighting sustainable growth areas. The brokerage’s insights underscore a more cautious tone for IT stocks compared with the previous year’s high-flying AI optimism.

Upcoming FY27 guidance is expected to be the sector’s next major trigger, with HSBC projecting Infosys to report growth in the range of 2.5% to 5%, while HCLTech could guide for 4.5% to 6.5% in constant currency terms. These ranges indicate moderate improvement from current trends but reflect a shift away from the traditional “beat-and-raise” approach often adopted by Indian IT firms. Analysts expect management teams to adopt a conservative and realistic outlook in light of uncertain demand and evolving AI adoption cycles, providing investors with a clearer picture of near-term prospects.

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Despite caution, pockets of resilience remain within the IT sector, particularly in banking, financial services, and insurance (BFSI) verticals. Infosys has signalled improving demand in banking and energy, which together contribute significantly to its revenue, while HCLTech emphasised its strong services mix and cost-optimisation deals as mitigating factors amid AI-driven changes. These developments suggest that selective segments may continue to see stable growth even as broader investor sentiment turns more measured.

Structurally, HSBC noted that the Indian IT investment thesis remains supported by ongoing enterprise cloud migration, legacy system modernisation, and gradual AI adoption. Strong corporate earnings among large US enterprises, which form the core client base for Indian IT firms, could further bolster technology spending. However, the brokerage cautioned that near-term performance will largely hinge on whether companies can deliver credible growth outlooks and translate AI-led productivity gains into meaningful revenue rather than just margin improvements.

Overall, Infosys and HCLTech are set to remain in the spotlight as investors evaluate how the sector adapts to an environment of tempered AI expectations and realistic earnings guidance. While structural drivers provide long-term support, the immediate focus is on FY27 projections and the ability of IT firms to balance conservative guidance with selective growth opportunities. Market watchers will be monitoring the next set of corporate updates closely to gauge whether the AI hype can sustain tangible financial returns.

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