JPMorgan has warned that the Indian IT sector is confronting an uncertain demand environment driven by an unprecedented combination of technology and business cycle headwinds, including GenAI-led deflation and geopolitical tensions. The brokerage stated that a meaningful recovery in industry growth remains distant as enterprises grapple with shifting tech priorities and budget constraints.
Revenue growth stuck at 2-3% for three years
According to JPMorgan's research report, the IT services industry "has been stuck at 2-3% revenue growth over the last three years." With "AI deflation still only in Year 2," the brokerage sees "further headwinds to growth over the next two years." In light of uncertainty around the timing of a positive inflection, JPMorgan has moderated its medium- to long-term growth estimates and now does "not expect large-caps to hit mid-single-digit growth and hover around 3-4% revenue growth."
Geopolitical uncertainty and AI changes delay deal ramp-ups
"Enterprises face FUD (fear, uncertainty, doubt) from changing tech and geopolitics, with tech services budgets crowded out from spending on AI tokens and cloud keeping industry growth recovery prospects uncertain," the report noted. Checks indicated "delays in deal ramp-ups and signings due to continued client indecision from geopolitical uncertainty and sharp AI changes," with weakness likely to "bleed into 2QFY27."
Three-stage AI adoption model: Deflation phase persists
JPMorgan reiterated that the sector is still in the first phase of its three-stage AI adoption model — Deflation — where "AI-led productivity gains in legacy/maintenance-heavy areas... are not entirely compensated by new AI services." The firm said "positive inflection is some time away, suggesting the industry growth funk could last longer than expected," and now fears the recovery "will extend beyond FY29 to FY30, making the near-term growth curve look more 'L'-shaped."
Revenue estimates cut; medium-term growth below 3-4%
On estimates, the brokerage said it cut first-quarter revenue growth assumptions "across the board" and expects FY27 revenue guides to be trimmed, as the "usual 1H strength is unlikely to play out this time." Structurally, it no longer assumes scale firms will return to "long-term average growth of 7-8% in the medium term," and instead models growth to "stay below 3-4% for the foreseeable future."
P/E multiples cut by 10-25% as growth outlook dims
Reverse DCF sanity checks drove "P/E multiple cuts by 10-25% across the board," with JPMorgan arguing current multiples that "trade below pre-COVID-19 averages... are justified, given that structural growth is stuck at below 5% now vs. 7-8% earlier." For multiples to re-rate, the brokerage said it needs to "see revenue growth accelerating where there is less visibility and confidence."
