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

India's IT services industry is facing a period of prolonged stagnation as technological shifts and global instability reshape enterprise spending. A recent research report from JPMorgan suggests that the sector may struggle to find a meaningful recovery path until FY30.

The 'L-Shaped' Growth Trajectory

The Indian IT services sector has been caught in a low-growth trap, with revenue expansion hovering between only 2% and 3% over the last three years. JPMorgan warns that the industry is not looking at a quick V-shaped recovery; instead, the growth curve appears to be "L-shaped."

The brokerage has significantly lowered its medium- and long-term growth estimates. While large-cap IT firms historically enjoyed long-term average growth of 7-8%, JPMorgan now forecasts that growth will remain stuck below 3-4% for the foreseeable future. The report suggests that a meaningful recovery is unlikely to materialize before the 2030 fiscal year.

GenAI: The Double-Edged Sword of Deflation

A primary driver of this slowdown is the current stage of Generative AI (GenAI) adoption. JPMorgan classifies the industry as being in the "Deflation" phase of a three-stage AI adoption model. In this stage, AI-led productivity gains in legacy and maintenance-heavy areas are actually reducing revenue, as these gains are not yet being fully compensated by the sale of new AI-driven services.

This "AI deflation" is effectively crowding out traditional tech services budgets. Enterprises are increasingly redirecting their capital toward AI tokens and cloud infrastructure, leaving little room for traditional IT outsourcing contracts. This shift has led to delays in deal signings and ramp-ups as clients navigate the rapid changes in the technological landscape.

Geopolitical Uncertainty and Budgetary Caution

Beyond technology, global geopolitical instability is creating a climate of "Fear, Uncertainty, and Doubt" (FUD) among enterprise clients. This uncertainty is causing businesses to reassess their technology budgets and investment priorities, leading to continued indecision.

Channel checks indicate that this weakness in demand is likely to bleed into the second quarter of FY27. The combination of shifting enterprise priorities and geopolitical volatility means that the usual first-half strength typically seen in the IT sector is unlikely to materialize in the coming cycles.

Impact on Valuations and Market Outlook

Due to these structural shifts, JPMorgan has taken a bearish stance on sector valuations. The brokerage has cut price-to-earnings (P/E) multiples by 10-25% across the sector. The rationale is simple: current valuations are difficult to justify when structural growth has plummeted from the previous 7-8% range to below 5%.

For the sector to see a valuation rerating, the brokerage notes that investors will need to see a clear acceleration in revenue growth—a metric that currently lacks visibility and confidence.

Key Takeaways

  • Prolonged Stagnation: India's IT sector is expected to see an "L-shaped" recovery, with growth potentially remaining below 4% until FY30.
  • AI Deflationary Pressure: GenAI is currently causing deflation in legacy services, as productivity gains outpace the revenue generated from new AI contracts.
  • Valuation Downside: JPMorgan has slashed P/E multiples by 10-25% due to the shift from historical 7-8% growth to a new, lower structural growth reality.