Investors likely to pose tough questions to IT firms in 2026 on AI-related developments

Indian IT companies are slowly coping up with AI-led changes. Many have taken significant steps for business growth during 2025. Despite that, most IT firms reported a revenue growth in mid-single digit in 2025. As we enter 2026, there is a likelihood that it will be better than 2025 as some signs of stability are already visible.

In the second quarter of FY26, earnings growth has stabilised to a large extent. In a conversation with the BizzBuzz, Pareekh Jain, Founder of Pareekh Consulting said that investors will be keen to understand how the business evolves in 2026. No more questions about how many PoCs going to production will be asked this year, he said. Investors want to see how revenue growth, margin, & hiring landscape progress next year.

According to Jain, the established employee pyramid structure is witnessing a shift. Therefore, hiring of engineers will certainly see many changes in the coming quarters. On H1B visa, Jain opined that it is practically done away with the current US administration’s moves. 2025 witnessed some bit of stability coming to IT earnings despite AI-led disruption & tariff-related challenges

What is your opinion about growth prospects of Indian IT firms in 2026? How AI-led businesses will pan out next year?

In 2026, investor community is hopeful of better days going ahead. The industry seems to have coped up with the tariff-related challenges that have emanated from the imposition of 50 per cent tariff by the US administration. Though it is early days to say that AI-led disruption has completely stabilised, it is a little bit stabilised now.

Recently, Accenture said that the company will not provide revenue separately coming from AI space. It seems like that the company is earning around 7-8 per cent of its revenue from AI, which looks more or less like revenue coming from digital. Some Indian service providers like TCS has earlier provided their AI revenue, which was more or less in the same range (around 5 per cent). So, Indian IT services providers are picking up in AI.

In 2026, all stakeholders will be less interested in how much revenue is generated from AI but they will be more interested in knowing where the business is going with AI. In 2025, it was more about stabilisation of business in the wake of AI wave and other issues like tariff and macroeconomic concerns.

In 2026, investors are more interested to know how IT services companies manage their operating models with AI?

As AI progresses towards scale, these questions will be asked to management of companies. In last one year, a lot of theoretical questions have been asked but now, the return on investment will be on focus.

For IT services companies, when AI scales, there is no way a certain level of cannibalisation can be stopped. So, it has to be seen that how companies manage cannibalisation of their revenues.

Reports indicate that IT firms have to settle for 20-30 per cent reduction in project pricing at the time of renewal. Can you provide some perspective on how margins will get impacted in 2026?

Margin is one of the important metrics to watch out for in 2026 and beyond. It has to see how companies manage revenues in the light of cannibalisation coming from AI and how they manage margin in the coming time? Due to adoption of generative AI tools, IT firms are reducing the bottom layer of the employee pyramid. As higher number of junior engineers are employed at the bottom of the pyramid, that is margin accretive for IT firms.

There is usually cost arbitrage play that happens. So, all these factors will definitely influence the margin environment in coming quarters. As we see increasing number of projects are being executed on outcome basis than on traditional T&M (time & material) model.

How pricing element of projects is going to be impacted due to rising AI adoption?

Pricing model in the AI era needs to evolve. In the T&M model, it is top to bottom. Generally, projects are priced on fixed price model. But the problem with fixed price model is that it happens in matured offerings. AI is very new. That means the market will not have many fixed price offerings.

Therefore, it has to be seen how fixed price model evolves with increasing role of AI in projects. Moreover, hyperscalers (Google, Amazon, Microsoft, Oracle) have started facing pressure owing to their large investments in AI without matching return on those investments. Increasingly, investors are asking about profitability of such investments.

As they face more pressure on profitability aspect, these hyperscalers will put pressure on margins from IT services companies. These aspects will play out in 2026 as the AI adoption accelerates.

In 2025, questions were asked about how many PoCs (proof of concepts) turn into production, what kind of revenue contribution is coming from AI?

These questions will not be relevant in 2026. Rather, stakeholders will be interested to know how IT firms are managing the changes in their business due to AI this year. Hiring by the IT firms has improved in 2025 as compared to 2024.

What is your opinion with respect to changes in hiring coming from the AI wave?

The big question is coming with respect to hiring. H1B visa route is practically finished. IT firms are publicly announcing that they are not filing any H1B visa applications. First thing, hiring will not be much due to the AI thing.

In onshore geographies like the US, hiring will happen locally. It means sending professionals to the US will be less. Third thing is that many companies have announced setting up new centres in tier-II and III cities with commitment to hire engineers there.

Now, the question comes when demand for workforce is falling, it has to be seen that how many such centres will be opened and what kind of hiring happens in those centres. Another change may happen in salary front. If IT firms don’t hire people in large numbers, they may hire lesser number of people at better salaries.

Ultimately, the pyramid structure of organisation is likely to change due to AI. It has to be seen that how hiring strategy evolve with changing dynamics. In 2026, metrics related to AI growth will be more visible with revenue per employee, revenue for client, and others giving clearer picture.

Will 2026 see visible signs of strategic shifts by Indian IT services companies?

The changes are already visible. IT firms have announced several acquisitions this year. So, it has changed. We will see many more announcements with regard to geographical expansion, acquisitions and others next year.

(The author is an IT outsourcing advisor & Founder of Pareekh Consulting)