Indian IT services firms are holding on to stable margins despite weak revenue growth, aided by currency tailwinds, tight cost controls, and automation, but pressures are beginning to mount. Analysts note that rising AI-led investments in infrastructure, talent, and integration are increasing costs even as clients shift to outcome-based pricing, reducing revenue visibility.
Margins are one area where no global IT firm can beat India, said Gaurav Vasu, CEO & Founder, UnearthInsight. Indian IT services firms have maintained stable margins, even with the labor code impact, which affected the bottom line this year.
Labour Code Impact
“In the last six months, margins have been phenomenal despite a challenge on the revenue side. Currency depreciation has helped them, but this was offset by the labour code impact. But these are not the only headwinds for margins. These companies all need to acquire companies, invest in high-end AI talent, and invest in infrastructure. They need to sustain and run the business part, which is the traditional offerings, while also building a future for AI,” he noted.
During the company’s Q4 earnings conference call, TCS CEO and MD K Krithivasan noted that the company’s focus on margin is not affecting its revenue growth.
“We should be able to do well on both. We believe that our good margins give us greater flexibility to approach new deals and be more competitive in gaining market share. We don’t lose deals on pricing. We work with our customers, ensure we give the best solution, and win deals. Our margins helped us with the last two acquisitions and our investment in HyperVault,” he said.
Meanwhile, CFO Samir Seksaria said TCS is exiting FY26 with annual margins at a four-year high of 25 per cent and expects continued positive momentum, adding that the company is working towards 26 per cent over the longer term.
Controlled Costs
However, while margin stability should not be dismissed. Sanchit Vir Gogia, Chief Analyst at Greyhound Research, explained, “What we are seeing is the result of careful management. Costs have been controlled. Hiring has been paced. Automation has helped where it can. While these actions provide stability in the short term, they do not eliminate the pressures building underneath,” he said.
Alongside, AI-led delivery changes the cost equation. Infrastructure requirements increase. Talent becomes more specialised. Integration becomes more complex. All of this adds to the cost base.
At the same time, pricing dynamics are shifting. Clients are asking for models that link payment to outcomes, which introduces variability and reduces predictability. There is also the question of scale. Early AI deployments operate within manageable boundaries. As they expand, costs tend to rise. Investment requirements are increasing, while pricing flexibility is decreasing. “Margins are holding for now. The challenge will be maintaining that position as these forces play out,” Gogia said.
AI Projects
However, Infosys CFO Jayesh Sanghrajka, during the company’s earnings conference call, stated that AI projects have better pricing, and therefore, they reflect better margins.
“These projects have a higher cost compared to regular projects because the talent is a premium at this point. How ahead of the curve you are in terms of benchmark will define the premium you get in the market. At this point, we have won $15 billion in deals, which talks about our positioning in the market. We are confident we are going in the right direction. This is also reflected in the pricing and the margins on the AI deals,” he said.
Published on April 28, 2026