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

India's IT services industry is facing a complex period of stagnation as technological shifts and global instability disrupt traditional spending patterns. A recent research report from JPMorgan suggests that the sector may struggle with a prolonged growth slump, with a significant recovery potentially delayed until FY30.

The 'L-Shaped' Growth Trajectory

For the past three years, India's IT services industry has been trapped in a low-growth cycle, recording revenue increases of just 2-3%. JPMorgan warns that this "growth funk" is unlikely to be a short-lived dip; instead, the industry may follow an "L-shaped" recovery curve.

The brokerage has lowered its medium- and long-term growth estimates, stating that large-cap IT firms are unlikely to return to their historical long-term average of 7-8% growth. Instead, revenue growth is expected to hover around a modest 3-4% for the foreseeable future. This downward revision reflects a shift in the structural reality of the Indian tech landscape.

The AI Deflation Trap

A critical factor in this stagnation is the current phase of Generative AI (GenAI) adoption. JPMorgan identifies the industry as being in the "Deflation" stage—the first of a three-phase model. In this phase, the productivity gains generated by AI in legacy and maintenance-heavy areas are actually reducing revenue, as these gains are not yet being fully compensated by the sale of new, high-value AI services.

Because AI-led deflation is only in its second year, the brokerage expects continued headwinds. Enterprises are currently experiencing "FUD" (fear, uncertainty, and doubt), causing them to reassess technology budgets. In many cases, traditional IT services budgets are being "crowded out" by the immediate costs of investing in AI tokens and cloud infrastructure.

Geopolitical Uncertainty and Budget Delays

Beyond technology, macro-environmental factors are playing a decisive role in slowing down deal momentum. Geopolitical instability has led to significant client indecision, resulting in delays in both deal signings and the "ramp-up" of existing contracts.

JPMorgan's channel checks indicate that this weakness is not just a quarterly issue but could bleed into 2QFY27. This lack of visibility is making enterprises cautious, as they struggle to balance long-term digital transformation with the immediate, unpredictable costs of a shifting geopolitical landscape.

Impact on Valuations and Market Outlook

As growth prospects dim, the financial markets are reacting accordingly. JPMorgan has slashed price-to-earnings (P/E) multiples across the sector by 10-25%. The brokerage argues that current valuations are more reflective of the new reality, where structural growth has stalled below 5%, compared to the previous 7-8% benchmark. For stock valuations to see a meaningful improvement, the industry will need to demonstrate accelerating revenue growth and restore client confidence in the post-AI era.

Key Takeaways

  • Stagnant Growth: Large-cap Indian IT firms are expected to see revenue growth restricted to 3-4%, falling far short of their historical 7-8% average.
  • AI-Driven Deflation: The industry is stuck in an "AI deflation" phase where productivity gains in legacy sectors are offsetting the revenue from new AI services.
  • Delayed Recovery: Due to geopolitical uncertainty and shifting enterprise spending, a meaningful industry recovery is not anticipated until FY30.