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MUMBAI: Infosys closed up 5.64% on July 3, 2026. TCS gained 4.31% and Tech Mahindra rose 4.34%. The rally, triggered by optimism around the India-US trade deal and comments from US Federal Reserve Chair Kevin Warsh easing near-term rate concerns, briefly felt like a turning point. The numbers behind the bounce tell a more complicated story.
As of June 30, the Nifty IT index had returned -30.58% year-to-date and -32.48% over the trailing year. TCS has fallen 54.96% from its August 2024 peak. Infosys is down 48.12%. LTIMindtree and Wipro have each corrected over 50%. Combined peak-to-current market capitalisation erosion across ten major IT stocks totals approximately ₹19.28 lakh crore.
The sector’s trailing price-to-earnings multiple now sits at 17.26x, against a ten-year historical median of 25.3x. Dividend yields have risen to 4.72%, nearly three times the historical average of 1.85%, as falling prices and sustained payouts converge. These metrics suggest a significant valuation reset. Whether that reset has found a floor depends on a question the market has not yet answered.
What the Financials Actually Show
The Big Four reported diverging trajectories in FY26. TCS posted $30 billion in revenue but recorded -2.4% constant currency growth year-on-year. Wipro’s CC growth was -1.6%. Infosys managed +3.1% and HCL Technologies +3.9%, but both guided conservatively for FY27. Infosys guided for 1.5% to 3.5% CC revenue growth. HCL guided 1% to 4%. Wipro guided its Q1 FY27 sequential revenue at -2% to 0%.
TCS maintained 25% EBIT margin. Cost control and workforce reductions absorbed revenue pressure. TCS cut net headcount by 23,460 in FY26. This discipline preserved profitability but also signals a structural shift away from headcount-led scaling, the model that built Indian IT’s global position across three decades.
Total contract value bookings look strong at face value. TCS reported $40.7 billion in FY26 TCV. Wipro ended the year with a record $16.4 billion. But analysts note a persistent lag between deal signing and revenue recognition. Clients are signing contracts and delaying implementation. That gap between bookings and billed revenue is the central uncertainty heading into Q1 FY27 results, which TCS reports on July 9.
The AI Question Has Two Answers
The structural debate about generative AI’s impact on Indian IT runs in two directions simultaneously and both are plausible.
The deflationary case is straightforward. Indian IT’s traditional model priced services by billable headcount. As GenAI tools automate code generation, testing and routine maintenance, clients are renegotiating master services agreements with upfront productivity discounts of 20% to 30%. Enterprise procurement teams argue that vendors can now do the same work with fewer people. That argument is mathematically correct. It compresses legacy contract revenue before new AI-native revenue streams mature.
Accenture’s Q3 results on June 18, which missed slightly on revenue at $18.7 billion and trimmed full-year guidance to 3% to 4% growth, reinforced this caution. The Nifty IT index fell 5.6% the following day. When the global bellwether moderates guidance, the Indian peers followed.
The expansion case is also real. A Nasscom-McKinsey estimate puts the global enterprise GenAI-first services market at $300 billion to $400 billion by 2030. Foundational data modernisation, AI infrastructure buildout and enterprise workflow integration are generating large contracts. HCL won a $100 million AI Factory deal. TCS partnered with OpenAI for 100MW of AI infrastructure. Infosys’s Topaz suite and TCS’s WisdomNext target the enterprise AI deployment market. Snowflake’s 30% year-on-year product revenue growth in Q4 FY26 confirms that enterprise cloud and data platform spending remains healthy even as consulting budgets tighten.
The Valuation Premium That Remains
Even after a 30% correction, Indian IT trades at roughly 13x estimated FY28 earnings. Global peers including Accenture, Cognizant and Capgemini trade at 8x to 10x forward earnings. The premium has compressed from a historical 20% to 30% corridor to its current 90%. That gap has not closed. It has widened in the wrong direction for the bull case.
JPMorgan downgraded HCL Technologies and Wipro to Underweight on June 24, projecting large-cap IT revenue growth of 3% to 4% over the next two years as AI productivity gains continue suppressing pricing. Nomura cut target multiples by up to 20%. Domestic managers at TRUST Mutual Fund and CLSA counter that the selloff is overdone and current levels represent an attractive entry for long-term holders given strong balance sheets and cash generation.
The Rupee Complication
The trade deal optimism that drove the July 3 rally carries its own headwind. A resolution of the India-US trade dispute has supported rupee appreciation. Indian IT firms earn in dollars and pay costs in rupees. A stronger rupee compresses reported margins and revenues in rupee terms. The sector rallied on trade deal news because visa friction easing and the release of frozen North American capex budgets outweigh the currency drag in the near term. Whether that balance holds depends on how far the rupee appreciates.
What July 9 Will Tell the Market
TCS’s Q1 FY27 results are consensus-expected at roughly ₹71,750 crore in quarterly revenue, with EBIT margins near 23.9%, down approximately 140 basis points sequentially from April salary increments. Sequential CC revenue growth is expected between flat and 2.2%.
Analysts will focus on backlog conversion velocity, North American BFSI spending signals and whether TCS’s annualised $2.3 billion AI revenue is high-margin consulting or lower-value data preparation work. A positive surprise on margin guidance or constructive North American commentary could trigger a sector re-rating. Any indication of deepening client delays would do the opposite.
The sector has corrected significantly. Whether that correction reflects fair value or simply the first chapter of a structural repricing is what July 9 begins to answer.
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