India’s information technology (IT) services sector faces an uncertain demand environment as generative artificial intelligence (GenAI)-led productivity gains, geopolitical uncertainty and shifting enterprise spending priorities continue to weigh on growth, with a meaningful recovery unlikely before FY30, according to a JPMorgan research report, ANI reported.The brokerage said the industry is facing an unprecedented combination of technology and business cycle headwinds, warning that enterprises remain cautious as they reassess technology budgets and investment priorities.The IT services industry “has been stuck at 2-3% revenue growth over the last three years” and, with “AI deflation still only in Year 2,” JPMorgan expects “further headwinds to growth over the next two years.”Given the uncertainty around the timing of a recovery, the brokerage has lowered its medium- and long-term growth estimates and now “not expect[s] large-caps to hit mid-single-digit growth and hover around 3-4% revenue growth.”
GenAI, geopolitics weigh on client spending
“Enterprises face FUD (fear, uncertainty, doubt) from changing tech and geopolitics, with tech services budgets crowded out from spending on AI tokens and cloud keeping industry growth recovery prospects uncertain,” the report said.Its channel checks indicated “delays in deal ramp-ups and signings due to continued client indecision from geopolitical uncertainty and sharp AI changes,” with the weakness likely to “bleed into 2QFY27.”
Industry still in AI ‘deflation’ phase
JPMorgan reiterated that the sector remains in the first stage of its three-phase AI adoption model — Deflation — where “AI-led productivity gains in legacy/maintenance-heavy areas… are not entirely compensated by new AI services.”The brokerage said “positive inflection is some time away, suggesting the industry growth funk could last longer than expected,” adding that it now expects the recovery “will extend beyond FY29 to FY30, making the near-term growth curve look more ‘L’-shaped.”
Growth forecasts, valuations cut
JPMorgan said it has reduced first-quarter revenue growth estimates “across the board” and expects FY27 revenue guidance to be lowered as “the usual 1H strength is unlikely to play out this time.”Structurally, it no longer expects large IT firms to return to their “long-term average growth of 7-8% in the medium term,” and instead forecasts growth to “stay below 3-4% for the foreseeable future.”The brokerage also said it has cut price-to-earnings (P/E) multiples by 10-25% across the sector, arguing that current valuations are justified as “structural growth is stuck at below 5% now vs. 7-8% earlier.”For valuations to improve, JPMorgan said it would need to “see revenue growth accelerating where there is less visibility and confidence.”