Why AI-led deflation, war impact not seen in IT sector in Q4 so far?

India’s information technology sector has so far remained resilient in the fourth quarter of FY26, with no visible signs of pricing pressure from artificial intelligence (AI) or disruption from the ongoing US-Iran tensions, according to a latest CLSA report based on pre-silent period interactions with leading firms. Despite heightened global uncertainty and rapid advances in AI tools, companies such as TCS, Infosys, HCLTech and Wipro have not reported any meaningful deflation in deal renewals or a sharp slowdown in demand, indicating that the sector’s near-term fundamentals remain intact.

No AI-led deflation in contract renewals so far

Add Zee Business as a Preferred Source

One of the key concerns for the IT sector in recent months has been the potential for AI tools to drive down pricing in service contracts. However, CLSA noted that there is no evidence yet of such deflationary pressure in ongoing or renewed deals.

The report underlined that the latest AI offerings from global players have not translated into immediate pricing cuts. Instead, companies appear to be maintaining pricing discipline, with AI adoption still in an exploratory phase rather than a cost-disruptive one.

US-Iran tensions yet to disrupt business momentum

So far, the ongoing US-Iran conflict hasn’t really hit Indian IT companies directly in Q4. CLSA pointed out that most big firms only have a tiny presence in West Asia, so they aren’t facing major revenue risks.

Still, the bigger picture depends on what happens next. If crude oil prices or inflation keep climbing because of this conflict, that can slow down global growth, raise interest rates, and cut into technology budgets. It really comes down to how long the situation drags on.

Demand trends remain steady across key verticals

CLSA’s interaction with companies show that demand is pretty steady in most areas. The BFSI segment keeps backing up the big IT firms, and tech continues to do well for companies like HCLTech and TCS. Still, a few spots are lagging. Retail, automotive, and healthcare aren’t seeing much momentum, which kind of lines up with the patchy global recovery.

Clients taking more time on decisions

While there is no sharp slowdown in deal activity, companies have flagged a slight delay in client decision-making.

The report says businesses are rethinking their tech strategies because of all these new AI tools popping up. Clients want to figure out how the latest innovations fit into their operations before they start pouring money into big projects. On top of that, all the geopolitical tension in the Middle East is making people even more careful about their choices.

Deal pipeline strong despite global uncertainty

Even with these short-term setbacks, CLSA sees strong deal pipelines throughout the industry.

So, demand for IT services is still solid. Clients are just being a bit more cautious with their spending. That steady pipeline gives companies confidence—when worries about AI and geopolitics settle down, there’s room for growth ahead.

Valuations attractive at 10-year average

The report also flagged that valuations for India’s IT sector are currently around their 10-year average, making them relatively attractive from an investment perspective.

CLSA maintained high conviction on mid-tier players such as Persistent Systems and Coforge, while retaining an ‘outperform’ rating on Infosys, Tech Mahindra, TCS and LTIMindtree. HCLTech and Wipro were assigned a ‘hold’ rating.

What lies ahead for the IT sector?

While the sector has remained steady in Q4 so far, CLSA emphasised that risks have not disappeared.

The trajectory of the US-Iran conflict, inflation trends and global interest rates will play a crucial role in shaping IT spending in the coming quarters. At the same time, the pace and scale of AI adoption could gradually influence pricing and demand dynamics.