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

India's IT services industry is entering a challenging period defined by technological disruption and global instability. A recent report from JPMorgan suggests that a meaningful recovery for the sector may not materialize until FY30, as GenAI and geopolitical tensions reshape enterprise spending.

The 'L-Shaped' Growth Outlook

The Indian IT services sector has struggled to find momentum, remaining stuck at a stagnant 2-3% revenue growth rate over the last three years. JPMorgan warns that the industry's recovery trajectory is shifting from a traditional V-shape to a more prolonged "L-shaped" curve.

Due to the uncertainty surrounding the timing of a market rebound, the brokerage has significantly lowered its medium- and long-term growth estimates. Instead of returning to the historical long-term average of 7-8% growth, large-cap IT firms are now expected to hover around a modest 3-4% revenue growth for the foreseeable future.

The AI Deflation Trap

A critical component of this slowdown is the industry's current position in the AI adoption cycle. JPMorgan identifies the sector as being in the "Deflation" phase—the first of a three-stage model. In this stage, AI-led productivity gains in legacy and maintenance-heavy services are actually reducing revenue, and these losses are not yet being fully offset by the revenue generated from new AI-related services.

This "AI deflation" is creating a budget squeeze. Enterprises are facing "fear, uncertainty, and doubt" (FUD) as they reallocate traditional technology services budgets toward spending on AI tokens and cloud infrastructure. This shift is effectively crowding out the classic IT services spend that has historically driven Indian IT revenues.

Geopolitical Headwinds and Delayed Deal Signings

Beyond technology, the report highlights that geopolitical uncertainty is fueling client indecision. Channel checks indicate significant delays in both deal signings and the "ramp-up" period of existing contracts.

The brokerage expects this weakness to persist, potentially bleeding into the second quarter of FY27. As enterprises reassess their investment priorities amidst a volatile global landscape, the usual strength seen in the first half of the fiscal year is unlikely to materialize, leading to lowered revenue guidance for FY27.

Impact on Market Valuations

The structural shift in growth rates has direct implications for investor sentiment and stock valuations. Because the industry's structural growth has dropped from the 7-8% range to below 5%, JPMorgan has cut price-to-earnings (P/E) multiples across the sector by 10-25%.

For valuations to see an upward correction, the brokerage notes that the market needs to see clear evidence of accelerating revenue growth—a metric that currently lacks visibility and confidence.

Key Takeaways

  • Stagnant Growth: India's IT sector is expected to remain in a low-growth phase (3-4%) rather than returning to its historical 7-8% average.
  • The AI Paradox: AI is currently in a "deflation" stage where productivity gains in legacy areas are cannibalizing revenue before new AI services can compensate.
  • Delayed Recovery: Due to geopolitical uncertainty and shifting tech budgets, a meaningful industry recovery is now projected to extend toward FY30.