Why India's IT Giants Keep Slipping: The Q1 FY27 Earnings Story

Here's a riddle the market served up this month. On July 9, TCS — India's largest IT company — reported a higher quarterly profit. Revenue was up almost 14%. And yet if you've held Indian IT stocks over the last couple of years, your portfolio probably still feels like it walked into a wall. How can profits rise while the stocks stay bruised?

That gap between 'the company is fine' and 'the stock is sulking' is one of the most useful lessons a beginner can learn about how markets work. Let's unpack it with the numbers actually on the table this quarter.

What the results said

TCS kicked off the Q1 FY27 earnings season with a net profit of about ₹13,349 crore, up 4.6% from a year earlier, on revenue up roughly 13.9%. Its India business grew a punchy 22.9% year-on-year, and revenue from AI-linked deals rose more than 13%. Infosys is due to report on July 23, with investors watching its full-year guidance and margins closely.

So the headline is not a disaster. These are still enormous, cash-rich businesses. The worry isn't this quarter's profit — it's what the next few years look like.

The ₹15 lakh crore elephant in the room

Here's the number that explains the mood: India's top five IT companies have together shed more than ₹15 lakh crore in market value from their August 2024 peak. Three fears are doing the damage — soft demand from US clients who are slow to sign new deals, a cautious outlook echoed by global peers like Accenture, and the big one: a nagging worry that AI could eat into the very work these firms sell.

Markets don't pay for what a company earned yesterday. They pay for what they believe it will earn tomorrow.

That single idea explains the riddle. IT firms earn well today, but a chunk of their revenue comes from armies of engineers doing coding, testing and support — precisely the tasks AI tools are getting scarily good at. If a client can do the same work with fewer billed hours, tomorrow's revenue growth shrinks even if today's profit is healthy. The stock reacts to the story about tomorrow.

Who benefits, who sweats

It's not all gloom. The firms winning AI-transformation contracts — helping clients actually deploy AI — can turn the threat into a new revenue line, which is why TCS flagged its rising AI-deal revenue. The pressure lands hardest on commodity, low-end services where AI substitutes most easily. Meanwhile, on the day of these results, a broader market rally (the Sensex jumped over 1%) was partly led by IT names bouncing — a reminder that beaten-down sectors can snap back sharply on any good news.

What it means for you

First, a great company and a great investment at today's price are not the same thing — that's the core lesson in how the stock market works. Second, this is a textbook case for not betting your future on one sector. If your money sat only in IT stocks, the last two years hurt; if it sat in a diversified index fund, the IT drag was cushioned by other sectors doing well. Concentration amplifies both joy and pain.

The IT sector's slump is really a live experiment in whether AI is a wrecking ball or a new engine for India's services giants. We won't know for a few years. What we do know today: rising profits and falling stocks can absolutely coexist, and that's the market pricing in a future it isn't yet sure about.

Over to you: do you think AI will hollow out India's IT services or hand them their next growth wave? Reply and tell us where you'd place your bet — no wagering required.