Infosys' Q2 FY27 numbers settle an argument I have been making since 2017: automation raises margin and destroys the billing base at the same time. AI revenue rose 29% to 10.5% of revenue while FY27 guidance was cut to 1-2%. Add $123 million of AI revenue against $63 million of total growth and the non-AI book actually shrank. AI is not an addition to the Indian IT P&L, it is a substitution inside it. I propose reskilling at national scale and an IP and product-led model in place of labour arbitrage.
Mint's Mark to Market review this morning (26 October 2026) records it flatly: Infosys has "once again lowered its FY27 constant-currency revenue guidance to 1-2%, down from 1.5-3% earlier".
In the same quarter, AI revenue grew 29% sequentially to 10.5% of revenue, from 8.2%. Large-deal TCV came to $5.2 billion, up 68% year on year. Everything the company could do right, it did — and the outlook still came down.
The explanation is one sentence from Systematix in that same Mint piece: Infosys "has the highest exposure to application services among tier-1 Indian IT companies, a service line structurally more vulnerable to AI-driven deflation." Application services is not adjacent to this disruption. It is the address.
Then do the subtraction that The Signal did on 24 October. In Q1, revenue was $5,082 million with AI at 8.2% — about $417 million. In Q2, $5,145 million with AI at 10.5% — about $540 million. AI revenue rose roughly $123 million; total revenue rose $63 million. Both can be true only if everything else fell, by about $60 million.
Which is why I put it this way: AI is not an addition to the Indian IT P&L. It is a substitution inside it. TCS crossed 10% AI revenue while growing 0.5% sequentially. Everest Group's Peter Bendor-Samuel told Moneycontrol on 24 October that compression which once ran at 2% is now 5%, and an industry growing at 6% now grows at 2.2%. Forrester's Biswajeet Mahapatra said clients want the gain "reflected in lower prices, smaller teams" — deflationary, in the end, "as the relationship between headcount, effort, and billing weakens."
That last clause is the human story. When billing stops tracking effort, the pyramid that hired a hundred freshers for one project has nothing to stand on. It is the entry-level squeeze in slow motion.
ET Tech reports today that seven of India's top nine outsourcing firms held or raised operating margins in Q2, HCLTech by 131 basis points to 18.2%. The industry is getting better at earning less. Fine for a quarter; ruinous as a decade.
I have been here before. In "Dear Narendrabhai, Only You Can Help!" (4 February 2017) I wrote: "Can Indian IT Re-invent itself? It is not a question of 'Can?' It is a question of 'When?' And the answer is 'Now'." I quoted Business Line in the same note: "These new beasts do not need a large workforce unlike earlier projects." The beasts arrived. The invoices are shrinking.
So, two things I would still press for, plus one small one:
- Reskilling at national scale, not company scale: modular AI, data and domain courses in a few hundred towns, tied to paid apprenticeships, so that a 2019-vintage Java tester has somewhere to go before the work does.
- A P&L that earns from IP and products rather than seats — the "Brain Factory" argument I made in When Panic Becomes Opportunity (21 September 2025) and again in When the H-1B Door Closes.
- One boring ask of the CFOs: define "AI revenue". Infosys gave a share without a definition; TCS has not defined it either. If reclassified delivery is being counted as new money, we should be told.
The billable hour was a good business for thirty years. It will not be for the next ten.
With regards,
Hemen Parekh
www.Iam-Immortal.ai / www.IndiaAGI.ai / www.YourContentCreator.in
26 October 2026
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