India’s information technology (IT) services sector faces an uncertain demand environment as Generic Artificial Intelligence (GenAI)-led productivity gains, geopolitical uncertainty and shifting enterprise spending priorities are impacting growth, according to a JPMorgan Research report, with meaningful recovery unlikely before FY30, ANI reported.The brokerage said the industry is facing an unpredictable combination of technology and business cycles, warning that enterprises should remain cautious as they reevaluate technology budgets and investment priorities.The IT services industry is “stuck at 2-3% revenue growth over the past 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 about the timing of the recovery, the brokerage has lowered its medium and long-term growth forecast and now “does not expect”[s] Large-caps will clock mid-single digit growth and revenue growth will be around 3-4%.”
GenAI, geopolitics impact customer spending
“As enterprises face FUD (fear, uncertainty, doubt) from changing technology and geopolitics, spending on AI tokens and cloud has eroded tech services budgets, making prospects for recovery in industry growth uncertain,” the report said.Its channel check indicates “delays in deal ramp-up and signings due to geopolitical uncertainty and clients’ continued indecision over rapid AI changes,” with weakness “likely to bleed into 2QFY27.”
The industry is still in the AI ’deflation’ stage
JPMorgan reiterated that the sector remains in the first stage of its three-stage AI adoption model – deflation – where “AI-led productivity gains in legacy/maintenance-heavy sectors… are not fully compensated by new AI services.”“There is still some time left for a positive turnaround, which suggests that industry growth may last longer than expected,” the brokerage said, adding that it now expects the recovery “to extend from FY2029 to FY30, making the growth curve appear more ‘L’ shaped in the near term.”
Growth forecast, valuation cut
JPMorgan said it lowered 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 companies to return to “long-term average growth of 7-8% in the medium term”, but instead predicts it to “remain 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 reasonable as “structural growth is now stuck below 5% as against 7-8% earlier.”To improve valuations, JPMorgan said it would need to “accelerate revenue growth where visibility and confidence are low.”