GenAI and Geopolitics to Pressurize India’s IT Sector Growth: JPMorgan

India’s IT services industry is facing a challenging period characterized by stagnant revenue growth and significant technological shifts. A recent research report from JPMorgan suggests that the sector may struggle with a prolonged recovery period due to the disruptive influence of Generative AI and global geopolitical instability.

The "L-Shaped" Recovery and Stagnant Growth

The Indian IT services sector has been trapped in a low-growth cycle, recording revenue growth of just 2-3% over the last three years. JPMorgan has warned that the industry is currently facing an "unprecedented combination" of business cycle and technological headwinds.

Rather than a traditional V-shaped recovery, the brokerage now anticipates an "L-shaped" growth curve. The report suggests that a meaningful recovery is unlikely to materialize before FY30, as enterprises remain cautious about reassessing their technology budgets and investment priorities in an uncertain global landscape.

GenAI: The Deflationary Force

One of the most significant hurdles identified is the impact of Generative AI (GenAI). The industry is currently in the "Deflation" phase—the first of a three-stage AI adoption model. In this stage, the productivity gains driven by AI in legacy and maintenance-heavy areas are not yet being fully compensated by the revenue generated from new AI-driven services.

This creates a phenomenon of "AI deflation," where the cost of traditional services drops due to automation, but the new revenue streams are not yet large enough to offset these losses. Furthermore, client indecision is rising as enterprises grapple with "FUD" (fear, uncertainty, and doubt), often diverting budgets away from traditional tech services toward AI tokens and cloud infrastructure.

Reduced Growth Forecasts and Valuation Cuts

Due to these structural shifts, JPMorgan has significantly lowered its medium- and long-term growth estimates for the sector. The brokerage no longer expects large-cap IT firms to return to their historical long-term average growth of 7-8%. Instead, it forecasts that revenue growth will hover around a modest 3-4% for the foreseeable future.

The impact of this outlook extends to market valuations. JPMorgan has cut price-to-earnings (P/E) multiples by 10-25% across the sector. The reasoning is straightforward: current valuations are being re-rated to reflect a structural growth reality that is stuck below 5%, compared to the 7-8% levels seen in previous cycles.

Prolonged Headwinds Through FY27

The uncertainty is expected to bleed into the near term, with channel checks indicating delays in deal signings and ramp-ups. The brokerage expects FY27 revenue guidance to be lower than usual, as the typical strength seen in the first half of the fiscal year is unlikely to manifest this time. For valuations to see any upward movement, the industry will need to demonstrate accelerating revenue growth and renewed visibility in its service pipeline.

Key Takeaways

  • Stagnant Growth: The IT sector is expected to see reduced revenue growth of 3-4%, a significant drop from its historical 7-8% average.
  • AI Disruption: The industry is in an "AI deflation" phase where productivity gains in legacy tasks are outpacing the revenue from new AI services.
  • Delayed Recovery: A meaningful recovery for large-cap IT firms is now projected to extend beyond FY29, potentially reaching FY30.