GenAI and Geopolitics to Weigh on India's IT Sector Growth: JPMorgan

India's IT services industry is navigating a period of significant turbulence as technological shifts and global instability reshape client spending. A recent report from JPMorgan suggests that the sector is facing an "L-shaped" growth trajectory, with a meaningful recovery potentially delayed until FY30.

The Stagnation Trap: From 7% to 3% Growth

For the past three years, the Indian IT services sector has been caught in a low-growth cycle, with revenue increases hovering between only 2% and 3%. Historically, large-cap Indian IT firms have maintained a long-term average growth rate of 7-8%. However, JPMorgan has significantly lowered its medium-term expectations.

The brokerage now predicts that large-cap IT companies will struggle to hit even mid-single-digit growth, instead hovering around a much lower 3-4% revenue growth range. This structural shift indicates that the era of rapid, high-margin expansion for the industry may be facing a prolonged period of stagnation.

GenAI and the 'Deflation' Phase

A primary driver behind this slowdown is the dual impact of Generative AI (GenAI) and shifting enterprise budgets. JPMorgan identifies the industry as being in the "Deflation" phase of its three-stage AI adoption model. During this stage, AI-led productivity gains in legacy and maintenance-heavy sectors are actually reducing costs rather than generating new revenue.

Crucially, these productivity gains are not yet being fully compensated by new AI-driven service contracts. Furthermore, enterprises are experiencing "FUD" (fear, uncertainty, and doubt). Tech services budgets are being crowded out as companies redirect their capital toward spending on AI tokens and cloud infrastructure, leaving traditional IT services in a secondary priority position.

Geopolitical Uncertainty and Delayed Deal Cycles

Beyond the technological shift, geopolitical instability is playing a decisive role in client indecision. JPMorgan’s channel checks reveal significant delays in deal signings and ramp-ups. Enterprises are reassessing their technology budgets and investment priorities in response to the volatile global landscape.

The report warns that this weakness is likely to persist, potentially bleeding into 2QFY27. Because of this continued indecision, the brokerage has revised its growth forecasts downward, suggesting that the anticipated "inflection point" for a sector-wide recovery is much further away than previously thought, likely extending beyond FY29.

Impact on Valuations and Market Outlook

The downward revision in growth prospects has direct implications for stock market valuations. JPMorgan has cut price-to-earnings (P/E) multiples across the IT sector by 10-25%. The rationale is simple: current valuations are difficult to justify when structural growth has dropped from the 7-8% range to below 5%.

For investor confidence and sector valuations to improve, the brokerage notes that the industry must demonstrate accelerating revenue growth—a metric that currently lacks visibility and certainty in the near term.

Key Takeaways

• Growth Reset: The industry is transitioning from a historical 7-8% growth average to a much lower structural growth bracket of 3-4%.
• AI Deflation: GenAI is currently causing "deflation" by automating legacy tasks without yet providing enough new service revenue to offset the loss.
• Delayed Recovery: Due to geopolitical FUD and budget shifts, a meaningful recovery in the IT services sector is not expected until FY30.