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India’s top IT services companies saw operating margins come under pressure in the June quarter as annual wage hikes, investments in AI and large-deal execution weighed on profitability. However, executives said AI-led productivity gains, operational efficiencies and currency tailwinds helped cushion the impact, with companies expecting margins to improve over the rest of the fiscal year.For TCS, operating margin for the June-ended quarter was 24 per cent, declining 130 bps sequentially. In the quarter, the company rolled out annual increments for its global workforce, which impacted margins by 170 bps.“We strengthened our partnership ecosystem and made targeted investments, which we could partly offset with 40 bps of currency benefit and operational efficiencies. We saw a 170-bps impact due to salary increments. We want to exit at 25 per cent plus and strive to achieve it sooner rather than later,” said Samir Seksaria, CFO, TCS during the company’s Q1FY27 Earnings Conference CallOperating marginsMeanwhile, Wipro’s operating margins for the quarter were 16 per cent, after a 1.2 per cent year-on-year decline because of the incremental impact of salary increase, ramp-up of large deals won earlier, and ongoing investments in AI. This, however, was partially offset by the rupee depreciation benefits and other operational efficiencies.“The drop of 120 bps in margins is the impact of merit salary increases coming into this quarter. Second is the investments in AI and in deals, and third, some acquisitions are in execution mode. Our mission is to go back to the narrow band of 17- 17.5 per cent,” said Srini Pallia, CEO & MD, Wipro.Pallia said traditional large deals focused on cost optimisation and vendor consolidation tend to face margin pressure, as companies often invest upfront to build long-term client relationships. In contrast, net-new AI transformation projects under its Reimagine AI portfolio deliver much better margins. However, he added that traditional engagements remain highly competitive, as vendors are expected to use AI to improve productivity while simultaneously helping clients optimise budgets.AI driveAnalysts said AI-driven productivity gains were the biggest support for margins in the June quarter, helping offset annual wage hikes, large-deal transition costs and continued AI investments. They added that productivity improvements, workforce optimisation, better utilisation and AI-enabled delivery models are increasingly shaping margin performance.“Operational efficiencies, automation and stable utilisation also supported margins, while currency movements provided a modest tailwind for some providers. Operating margins should remain broadly stable through FY27; however, providers will face increasing pressure to share AI-led productivity benefits with clients through pricing negotiations and outcome-based commercial models. Margin sustainability will depend on the ability to monetise AI through differentiated services, platforms and business outcomes rather than traditional labour-based delivery,” said Biswajit Maity, Senior Principal Analyst, Gartner.While wage pressures remain manageable, pricing has remained stable for strategic services. “Currency movements can create short-term fluctuations, but the biggest structural factor is the industry’s ability to use automation and AI to decouple revenue growth from headcount growth. Margin sustainability will depend on how quickly organisations convert AI investments into delivery efficiency and operational scale,” Biswajeet Mahapatra, Principal Analyst, Forrester, said.Published on July 24, 2026
