In a shift from the ‘growth at any cost’ era, IT services industry leaders like Infosys Ltd, HCL Technologies Ltd, and Tech Mahindra Ltd are increasingly avoiding low-margin contracts, preferring to sacrifice top-line revenue to protect their bottom lines from the impact of artificial intelligence (AI).
The change comes as generative AI begins to affect the traditional outsourcing model. By automating tasks that previously required thousands of engineers, AI is compressing deal values and forcing firms to choose between hyper-competitive, low-yield work and more lucrative, automated services.
The impact of this selectivity is already showing up in the books. HCLTech reported a 36% sequential drop in deal wins after walking away from nearly $1 billion in potential contracts, while Infosys trimmed its growth guidance after passing on a deal with a major European manufacturer. The message is: margin is important.
For an industry built on the pursuit of scale, this shift marks a maturing phase. As pricing pressure increases and new revenue models remain in their infancy, the race for volume is being replaced by a focus on the ‘as-sold’ margins of every contract.
At least one chief executive said his company did not hesitate about walking out of ‘traditional deals.’
“We have walked away from some deals which will not make sense, and that would have easily contributed at least $1 billion more to this number (total contract value),” said C. Vijayakumar, during the company’s post-earnings analyst call on 21 April.
He added that the company would spend its energy on bidding for more AI-led deals.
This impacted the company’s deal wins in January-March 2026, which fell 36% on a quarterly basis to $1.94 billion. Its annualised AI revenue totalled $620 million.
Shrink to grow?
Vijayakumar’s sentiments were voiced by a peer, whose guidance could have been higher if not for a revenue dent by an auto client.
The company faced a “reduction of 0.75% to 1% to its growth guidance due to lower revenue from one of its large European manufacturing clients.”
“This was due to reduced client spend on account of challenging macro environment, along with our conscious decision to not pursue a certain deal that was not aligned to our return expectations,” said Salil Parekh, CEO of Infosys, during the company’s post-earnings analyst call on 23 April.
The company ended last year with $20.16 billion in revenue, up 4.57% in US dollar terms and 3.1% in constant currency terms. It expects growth between 1.5% and 3.5% for FY27. Constant currency does not take currency fluctuations into account.
On the other hand, HCLTech expects slower growth in FY27. Its management guided for 1-4% revenue growth in constant currency terms as against last year’s 2-5% guidance.
HCLTech ended last year with $14.66 billion, up 6% on a yearly basis in dollar terms. Both Infosys and HCLTech were the fastest growing companies of the top five and both highlighted client-related challenges as one of the reasons for muted guidance.
At least one analyst said this is done to prioritise margins.
“The companies might not engage in deals or walk out from those on the table if deal margins are low. While HCLTech increased its margin aspirations, Infosys retained it, which signals that they are not willing to compromise on profitability to chase growth," said Karan Uppal, lead IT analyst at Phillip Capital.
Profitability is the buzzword
Another analyst voiced a similar perspective.
“There is very intense pricing competition happening right now as companies struggle with the slow industry growth rate and revenue compression from AI," said Peter Bendor-Samuel, founder of Everest Group.
Infosys’ and HCLTech’s operating margins declined 70 basis points and 100 basis points in the last three years to 20.3% and 17.2%, respectively. One basis point is a hundredth of a percentage point.
A third expert said this is a structural shift and not a one-off pricing disagreement.
Yet another company executive said they are increasing their vigil on profitability.
“We're extremely conscious on what margins and the risk profile we sign it up (large deals),” said Mohit Joshi, CEO of Tech Mahindra, during the company’s analyst call on 22 April.
The management added that it is very selective not just on the large deals it signs but also on the ramp-ups over the last year. “We track this very closely and we show it to the board as well that our as-sold margins on each of these deals from a portfolio perspective are accretive and we'll continue to make sure as we execute them,” said Joshi.
Tech Mahindra’s operating margins jumped 290 basis points to 12.6% at the end of last fiscal. Much of this resulted from its margin expansion programme outlined in April 2025, which involved eliminating accounts with low profitability.
Infosys, HCLTech, and TechM’s approach to retaining profitability comes at a time when TCS has prioritised profitability over revenue growth when it walked out of some mega deals, including that of Vanguard.
