India's leading IT services companies disbursed a record Rs 1.3 trillion to shareholders in FY26 through dividends and share buybacks, marking a significant increase despite facing challenges from artificial intelligence models and a substantial decline in their market valuation.
Key Points
- India's top 16 IT services companies paid a record Rs 1.3 trillion to shareholders in FY26, a 36.3 per cent increase from the previous year.
- The payout ratio for these companies reached a record 102.2 per cent of their reported net profit in FY26, indicating distribution exceeding annual earnings.
- The surge in payouts is largely driven by significant share buybacks from Infosys (Rs 18,000 crore) and Wipro (Rs 15,000 crore).
- Despite the increased payouts, the combined market capitalisation of these firms declined by 25.3 per cent in FY26, their worst annual performance in over a decade.
- Analysts suggest the high payout reflects a strategy to reward shareholders amidst wealth erosion and a reluctance to invest heavily in newer technologies like AI, raising concerns about long-term growth potential.
India’s top 16 information-technology (IT) services companies in FY26 paid its shareholders a record high amount of around Rs 1.3 trillion in dividend and share buyback even as the industry faced a threat to its traditional business configurations from artificial-intelligence (AI) models.
The amount is 36.3 per cent higher than the payout of around Rs 95,400 crore for FY25. This is the industry’s fastest growth in payout in the last nine years.
The payout had declined 10.6 per cent in FY25 because companies had given priority to profit retention due to a slowdown in growth in revenue and earnings.
On the other hand, the combined net profit of these 16 companies in FY26 was up just 3.5 per cent year-on-year (Y-o-Y), growing at the slowest pace in the last eight years, while their net sales increased 7.6 per cent, an improvement from 5.1 per cent in FY25.
Their combined profit after tax grew to around Rs 1.27 trillion in FY26 while their net sales rose to about Rs 8.28 trillion last financial year.
Factors Driving Record Payouts
The increase in payout is largely due to a record high share buyback by Infosys and Wipro.
Infosys completed its biggest ever share buyback, worth Rs 18,000 crore, in November last year.
Wipro has announced a buyback of Rs 15,000 crore, to be completed later this year.
Among smaller companies, Cyient announced its biggest share buyback, worth Rs 720 crore, to be completed later this year.
With this the industry will spend Rs 33,895 crore on buyback for FY26, the second-best year on this since FY24, when IT companies had given Rs 38,300 crore.
In comparison, equity dividend was up just 0.7 per cent to Rs 96,102 crore for FY26 from Rs 95,401 crore for FY25.
Tata Consultancy Services (TCS), historically the biggest payer in the industry, cut dividend payout by 12.7 per cent for FY26 because it is planning to invest in data centres and AI businesses.
The payout by TCS for FY26 declined to Rs 38,820 crore from Rs 45,612 crore in FY25. TCS has done no share buyback in the last two financial years.
Payout Ratio Exceeds Net Profit
As a result, the industry will be distributing more than its FY26 annual net profit to shareholders by way of dividend and share buyback.
The payout ratio for these 16 companies in Business Standard sample rose to a record high of 102.2 per cent (of reported net profit) in FY26 from 77.7 per cent in FY25. The ratio had declined in FY25 from 93.9 per cent in FY24.
The industry in FY26 shifted gear and analysts attribute it to a decline in stock prices and the market capitalisation of individual IT companies.
“A sharp rise in payout in FY26, despite continued growth headwinds, seems to be motivated by companies’ strategy to reward shareholders at time when they have seen wealth erosion due to a decline in share price,” said G Chokkalingam, founder and chief executive officer, Equinomics Research.
Market Capitalisation Decline and Analyst Concerns
The combined market capitalisation of the 16 companies was down 25.3 per cent in FY26, their worst annual showing in more than a decade. It declined to around Rs 24 trillion at the end of March 2026 from around Rs 32.2 trillion at the end of March last year.
There has been a further sell-off in the IT sector stocks last week and the combined market capitalisation of these 16 declined to around Rs 23.21 trillion on Tuesday, nearly 29.5 per cent lower than their record high market capitalisation of Rs 32.95 at the end of March 2022.
A continued poor showing on the bourses suggests that a step-up in payout is having little or no effect.
Analysts attribute this to revenue slowdown due to AI and the companies’ reluctance to invest in newer technologies, including AI. “AI spending is crowding out IT services spend, even as total tech spending is growing at an accelerated pace.
"AI deflation is becoming a reality even as there is a timing lag in new programs resulting in weaker-than-expected growth guidance,” wrote analysts at Kotak Institutional Equity.
According to Chokkalingam, a payout ratio of more than 100 per cent suggests that companies and their promoters are not confident of investing in newer technologies.
“This will not restore investors’ confidence in the long-term growth potential of the Indian IT services industry,” he said.
