India’s IT services industry could face a prolonged slowdown as artificial intelligence adoption and global economic uncertainty continue to reshape enterprise technology spending, according to a recent research report.
The report said the sector has witnessed weak momentum over the past 3 years, with revenue growth remaining around 2-3%. It warned that the combined impact of AI-driven transformation and cautious client spending could create additional challenges for the industry over the next 2 years.
According to the report, enterprises are re-evaluating their technology budgets as AI evolves rapidly and geopolitical uncertainties persist. Investments in AI platforms, cloud infrastructure and other emerging technologies are increasingly competing with traditional IT services budgets, reducing demand for conventional outsourcing services.
The brokerage noted that the industry is currently in the early “deflation” phase of AI adoption. During this stage, productivity gains from automation and AI in legacy services have not yet been fully offset by new AI-led business opportunities.
The report has also lowered its long-term growth outlook for large Indian IT companies. It said the industry is unlikely to return to its earlier average growth rate of 7-8% and expects revenue growth to remain closer to 3-4% in the coming years.
It further warned that the recovery could take longer than previously expected, extending beyond FY29 into FY30, resulting in an “L-shaped” growth trajectory for the sector.
The brokerage also revised its valuation outlook, stating that current market valuations already reflect concerns over slower structural growth and the lack of visibility on a near-term recovery for India’s IT services industry.
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