India's information technology (IT) services sector is grappling with an unprecedented mix of headwinds that will keep growth under pressure for years, according to a JPMorgan research report cited by ANI. The brokerage warned that generative artificial intelligence (GenAI)-driven productivity gains, geopolitical uncertainty, and shifting enterprise spending priorities are creating a "fear, uncertainty, doubt" (FUD) environment, making clients cautious and delaying deal ramp-ups.
GenAI and Geopolitics Weigh on Client Spending
JPMorgan noted that enterprises face FUD from changing technology and geopolitics, with tech services budgets crowded out by spending on AI tokens and cloud. The firm's channel checks indicated "delays in deal ramp-ups and signings due to continued client indecision from geopolitical uncertainty and sharp AI changes," with the weakness likely to "bleed into 2QFY27." The report stated the industry "has been stuck at 2-3% revenue growth over the last three years" and expects "further headwinds to growth over the next two years."
Industry Still in AI 'Deflation' Phase
JPMorgan reiterated that the sector remains in the first stage of its three-phase AI adoption model — Deflation — where "AI-led productivity gains in legacy/maintenance-heavy areas... are not entirely compensated by new AI services." The brokerage said "positive inflection is some time away," making the near-term growth curve look more "L-shaped." It now expects recovery to "extend beyond FY29 to FY30."
| Metric | Previous Long-Term Average | Current JPMorgan Expectation |
|---|---|---|
| Large-cap revenue growth | 7-8% | 3-4% (below 5% structurally) |
| Recovery timeline | (not specified) | FY30 |
| P/E multiples | (baseline) | Cut by 10-25% across sector |
Growth Forecasts and Valuations Cut
JPMorgan reduced first-quarter revenue growth estimates "across the board" and expects FY27 guidance to be lowered as "the usual 1H strength is unlikely to play out this time." Structurally, the firm no longer expects large IT firms to return to their "long-term average growth of 7-8% in the medium term," instead forecasting growth to "stay below 3-4% for the foreseeable future." The brokerage also cut price-to-earnings (P/E) multiples by 10-25% across the sector, arguing that current valuations are justified because "structural growth is stuck at below 5% now vs. 7-8% earlier." For valuations to improve, JPMorgan said it would need to "see revenue growth accelerating where there is less visibility and confidence."
For enterprise technology buyers, the report underscores that IT services providers will continue to face revenue pressure, potentially leading to delayed project starts and cautious investment in new initiatives. Clients reassessing technology budgets amid GenAI uncertainty may find it harder to secure large-scale transformation deals in the near term.
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