Behind the
Nifty IT rally: The quiet shift from projects to annuities
For two
decades, India's technology services industry ran on a simple formula: win a
project, build it, bill for it, then hope for a renewal. That formula is
breaking down. Enterprises no longer just want systems built. They want help
figuring out whether their AI investments are actually working, whether they're
governed properly and whether they're secure and none of that ends when a
project goes live. Models need monitoring. Governance policies need periodic
updates. Regulatory expectations keep shifting. It's exactly the kind of
ongoing work that turns into recurring revenue instead of a one-time bill and
recurring revenue tends to be more predictable than project work, which is part
of why it matters so much for how these companies get valued.
The June
quarter numbers make the case well. TCS said its AI business hit an annualised
revenue run rate of $2.6 billion, up 13.6% sequentially and landed an $800
million AI-led transformation deal with SKF. Infosys's AI-led services climbed
to 8.2% of total quarterly revenue, up from 5.5% just two quarters earlier,
while the company also picked up $3.6 billion in large deal wins. HCLTech's
AI-led revenue grew 62.1% year-on-year to $171 million. And at Mphasis, 63% of
the quarter's $461 million in new deal wins were AI-linked, helping push
consolidated revenue up 17.5% to ₹4,384 crore.
The market
noticed. Nifty IT gained 18.4% in July, its best month in six years, even while
global tech stocks were struggling. Some analysts are calling this a
"reverse AI trade" money that had been chasing AI winners abroad is
now rotating back into Indian IT names that were, until recently, seen as AI's
likely victims rather than its beneficiaries. Part of it is simply that Q1 FY27
earnings came in better than the market's lowered expectations and management
commentary pointed to a steadier demand environment ahead.
None of this
means the sector is out of the woods. Crisil Ratings still expects Indian IT
services revenue growth of just 1% to 3% this financial year, improving only
modestly to 2% to 4% next year, weighed down by AI-led disruption, weak
discretionary spending and geopolitical uncertainty. Some verticals are still
shrinking, healthcare and life sciences in the US, for one, saw revenue
declines at several large IT firms this quarter.
The bigger
opportunity may not be AI implementation itself, but the recurring services
that follow it: governance, security monitoring, compliance advisory, AI
operations management. Executives across the industry are starting to talk
about this as the sector's next annuity business, echoing what application
management became in the outsourcing era before it. It's also changing how
these companies think about people teams built around cloud, cybersecurity,
data engineering and industry-specific consulting are becoming more valuable
than pure delivery skills.
For retail
investors, the thing worth tracking isn't any single stock. It's a simpler
question you can ask every quarter: how much of a company's growth is one-time
AI implementation and how much is recurring, governance-linked work? That mix
may end up mattering more to how the market prices these stocks than headline
revenue growth does for the rest of this earnings season and beyond.
By Srishti Mendiratta | SEBI-Registered Research Analyst – INH000024295
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