India’s information technology (IT) sector has long been one of the country’s biggest growth engines, contributing significantly to exports, employment, and the stock market. For years, Indian IT companies benefited from rising global demand for software development, digital transformation, and outsourcing services. However, the industry is now entering a new phase where technological disruption and global uncertainty are reshaping the outlook.
Artificial Intelligence (AI) is changing the way businesses invest in technology, while geopolitical tensions and cautious corporate spending are delaying new projects. According to a recent report by JPMorgan, these factors could keep growth in India’s IT services sector under pressure for a longer period than previously expected.
Let us understand why the industry’s growth is slowing and what it could mean for companies and investors.
According to JPMorgan, India’s IT services industry has remained stuck at around 2-3% revenue growth over the past three years. The brokerage believes this subdued performance could continue over the next two years as businesses across the world rethink their technology spending.
What’s Happening?
The report highlights that companies are increasingly allocating budgets towards AI infrastructure, cloud computing, and AI models, leaving less room for spending on traditional IT services. At the same time, geopolitical uncertainties and changing business priorities have made many global clients more cautious, leading to delays in technology contracts and slower project execution.
Given these challenges, JPMorgan has lowered its medium- and long-term growth expectations for the sector. It now expects large Indian IT companies to grow at around 3-4%, instead of returning to their historical growth rates of 7-8%.
How Is AI Changing the IT Services Industry?
JPMorgan believes the industry is currently in the first stage of AI adoption, which it describes as the ‘Deflation’ phase.
During this phase, AI improves productivity in routine and maintenance-related work, allowing businesses to complete many tasks with fewer resources. While this helps clients reduce costs, it also lowers the demand for traditional outsourcing services that have historically been a major source of revenue for Indian IT companies.
Although AI is expected to create new business opportunities over time, the report suggests these opportunities are not yet large enough to offset the decline in demand for legacy services. As a result, the overall growth of the industry could remain under pressure until AI-driven services become more commercially significant.
Global Uncertainty Is Also Affecting Demand
Apart from AI, global economic and geopolitical developments are also influencing technology spending.
Many enterprises are adopting a wait-and-watch approach before committing to large digital transformation projects. Ongoing geopolitical tensions, economic uncertainty, and rapidly evolving AI technologies have increased caution among clients, leading to delays in deal signings and slower project ramp-ups.
According to JPMorgan, this cautious spending environment is likely to continue in the near term, reducing the chances of a strong recovery during FY27.
What Does This Mean for Investors?
The report suggests that investors may need to moderate expectations from the IT sector over the next few years. Slower revenue growth could also limit earnings growth and keep valuations under pressure.
However, this does not necessarily weaken India’s long-term position in global technology services. Indian IT companies continue to benefit from strong client relationships, global delivery capabilities, and increasing investments in AI-related solutions.
Companies that successfully adapt to AI, develop new digital capabilities, and diversify their service offerings may be better positioned to benefit when technology spending eventually improves. Investors may therefore need to focus more on business quality, AI readiness, and execution capabilities rather than expecting a broad-based recovery across the sector.
What’s Next?
According to JPMorgan, the industry’s recovery could take longer than previously expected, potentially extending beyond FY29 into FY30. The brokerage believes the sector is still in the early stages of AI-led transformation, where productivity gains are reducing demand faster than new AI services are generating revenue.
Going forward, the pace of AI adoption, enterprise technology spending, and global economic conditions will play a crucial role in determining the sector’s growth trajectory. While the near-term outlook remains challenging, the industry’s ability to adapt to changing technologies will be key to its long-term growth prospects.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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