GenAI and Geopolitics to Pressure India’s IT Growth, Warns JPMorgan

India's IT services sector is facing a challenging period as a combination of generative AI disruption and global geopolitical instability stifles revenue expansion. According to a recent report by JPMorgan, the industry is entering a prolonged period of sluggish growth, with a meaningful recovery potentially delayed until FY30.

The 'L-Shaped' Growth Reality

The Indian IT services industry has struggled to find momentum, remaining stuck at a mere 2-3% revenue growth over the last three years. JPMorgan warns that the near-term growth curve is looking increasingly "L-shaped," suggesting that the current "growth funk" could last much longer than many industry analysts initially anticipated.

The brokerage has significantly lowered its medium- and long-term growth expectations. While large-cap IT firms historically targeted mid-single-digit growth, JPMorgan now expects these players to hover around a modest 3-4% revenue growth. Crucially, the report suggests that the industry may no longer return to its long-term average of 7-8% growth in the foreseeable future.

The AI 'Deflation' Phase

A primary driver of this slowdown is the current stage of artificial intelligence adoption. JPMorgan classifies the sector as being in the "Deflation" phase—the first of a three-stage model. In this phase, AI-led productivity gains in legacy and maintenance-heavy service areas are actually reducing revenue, as these gains are not yet being fully compensated by the emergence of new, high-value AI services.

This phenomenon is creating a budget squeeze for enterprises. Clients are facing "Fear, Uncertainty, and Doubt" (FUD) due to rapid technological shifts. Consequently, traditional tech services budgets are being crowded out by intensive spending on AI tokens and cloud infrastructure, leading to delays in deal signings and ramp-ups.

Geopolitical Uncertainty and Valuation Cuts

Beyond technology, shifting enterprise spending priorities and geopolitical volatility are causing clients to remain indecisive. This lack of confidence is expected to bleed into the second quarter of FY27, complicating the revenue outlook for major IT players. JPMorgan anticipates that FY27 revenue guidance will likely be lowered, as the typical strength seen in the first half of the fiscal year is unlikely to materialize this time.

This structural shift in growth has also triggered a downward revision in market valuations. JPMorgan has cut price-to-earnings (P/E) multiples by 10-25% across the sector. The brokerage argues that current valuations are more reflective of a reality where structural growth is stuck below 5%, compared to the previous 7-8% era. For valuations to see an upward trajectory, the industry must demonstrate accelerating revenue growth and restored client confidence.

Key Takeaways

  • Delayed Recovery: A meaningful industry recovery is unlikely before FY30, with growth expected to remain in the 3-4% range for large-cap firms.
  • AI Disruption: The industry is in an "AI deflation" phase where productivity gains in legacy services are currently outweighing the revenue from new AI-driven contracts.
  • Valuation Reset: JPMorgan has slashed P/E multiples by 10-25% due to the shift from 7-8% historical growth to a new, lower structural growth ceiling.