Indian IT Battles AI Deflation, Middle East Jitters with Surge in Acquisitions

India's big IT service companies are facing a tough start to Financial Year 2026-27, as new report shows their earnings are growing very slowly. This slowdown is due to two main reasons: artificial intelligence (AI) making services cheaper, and ongoing fights and problems in the Middle East making global business uncertain. To fight these problems and keep growing, these companies are now buying up smaller businesses and making more investments than before. The "AI deflation" means that because AI tools can do many tasks faster and with less human effort, clients expect to pay less for IT services, putting pressure on prices and company profits. Some reports suggest AI could cut IT revenue by 3-5% annually. At the same time, the conflict in the Middle East is causing companies to be careful with their spending, delaying projects, and even increasing costs like insurance for businesses working in affected regions. This dual challenge has pushed top firms like LTIMindtree, Wipro, and Tech Mahindra to look for 'inorganic growth' through acquisitions, spending billions of dollars to quickly add new skills and customers. Looking ahead, analysts believe that while these challenges will continue to make things difficult for the Indian IT sector in the short term, the long-term future is still positive. Companies are investing heavily in AI deployment and modernising old systems, which should help them earn more money from AI eventually. Investors will be watching closely to see if this strategy of buying other companies helps overcome the current pressures and leads to better growth in the coming quarters.