India IT sector growth distant amid GenAI, geopolitics: JPMorgan

It is whether that work arrives fast enough to offset the cash-saving, headcount-light productivity gains AI is already forcing through legacy maintenance and support contracts. JPMorgan, in a research report cited by Asianet Newsable and echoed in headlines from The Times of India and Devdiscourse, says the recovery still looks distant — squeezed between GenAI-led deflation, geopolitics, and clients who are hesitating before they sign or ramp up deals.

AI is not yet a growth engine — it is a deflation engine

The sharpest line in JPMorgan’s view is that Indian IT services are still in the first phase of its three-stage AI adoption model: “Deflation.” In plain business English, that means clients are using AI to get more output from older, maintenance-heavy workstreams, but the new AI services revenue is not yet large enough to compensate.

That matters because the sector has already been stuck in a narrow lane. According to the report, the industry has seen only 2–3% revenue growth over the last three years. JPMorgan now expects large-cap IT firms to hover around 3–4% revenue growth rather than return to mid-single-digit growth soon.

This is the uncomfortable bargain at the heart of GenAI for services companies. The same tools that can help engineers move faster can also make clients ask why they should pay the same for yesterday’s outsourcing model. Productivity, in this phase, does not automatically become expansion. Sometimes it simply eats the billable base.

Clients are spending, but not always where IT vendors want

JPMorgan’s report also points to a budget crowding problem. Enterprises are dealing with what it calls fear, uncertainty and doubt from fast-changing technology and geopolitics, while spending on AI tokens and cloud infrastructure competes with traditional tech services budgets.

That is a subtle but important distinction for founders, CIOs and investors watching India’s IT majors. Demand has not disappeared into thin air. It is being redirected, repriced and delayed. The report says checks indicated delays in deal ramp-ups and signings because clients remain undecided amid geopolitical uncertainty and sharp AI-driven changes.

JPMorgan expects that weakness to bleed into 2QFY27. It also cut 1Q revenue growth assumptions across the board and expects FY27 revenue guidance to be trimmed, noting that the usual first-half strength is unlikely to play out this time.

For enterprise buyers, this is a moment to interrogate vendor proposals harder: which parts of the engagement are genuinely AI-native, and which are old managed services wearing a new badge? For IT vendors, the risk is more brutal. If AI savings arrive before AI-led demand, margins may look clever for a while, but growth can still stall.

The recovery curve looks more like an “L” than a snapback

JPMorgan’s broader message is that the sector’s growth funk may last longer than expected. The brokerage now fears recovery could extend beyond FY29 to FY30, making the near-term growth curve look more “L”-shaped.

That view has valuation consequences. The report says JPMorgan no longer assumes scale firms will return to their earlier long-term average growth of 7–8% in the medium term. Instead, it models growth staying below 3–4% for the foreseeable future. It also made P/E multiple cuts of 10–25% across the board, arguing that current multiples below pre-COVID-19 averages are justified because structural growth is now stuck below 5%, versus 7–8% earlier.

The practical read: do not mistake AI activity for IT services acceleration. There may be pilots, proofs of concept, cloud bills, token consumption and strategy decks everywhere — a whole bright swarm of experimentation. But JPMorgan is saying the revenue engine beneath that noise has not yet turned.

For India’s IT sector, the next signal to watch is not just “more AI deals.” It is whether revenue growth actually accelerates in areas where visibility is still thin. Until then, GenAI looks less like a tailwind and more like a force rearranging the economics of the industry before the next growth story has fully arrived.