Artificial intelligence is changing the growth trajectory of India's IT services industry, but not in the way many expected.
According to a new report by JP Morgan, AI-led productivity gains, delayed deal conversions and cautious enterprise spending are likely to keep the sector under pressure, prompting the brokerage to favour Infosys and Tata Consultancy Services (TCS) over HCLTech and Wipro.
The brokerage expects large IT services firms to deliver only 3-4% medium-term revenue growth, significantly below the mid-single-digit growth rates the industry has historically targeted.
AI is slowing demand before creating new opportunities
JP Morgan said the industry remains in what it described as the "deflation" phase of AI adoption, where productivity gains are reducing demand for traditional IT services faster than new AI-related spending is emerging.
The brokerage also believes the typical first-half recovery for Indian IT companies is unlikely this year, citing:
- Delayed deal closures
- Slower project ramp-ups
- Cautious enterprise spending
- Geopolitical uncertainty
- Rapid AI-driven changes in client priorities
Following weaker guidance from Accenture, JP Morgan expects Infosys, HCLTech and Wipro to either lower or soften their FY27 guidance.
Why JP Morgan prefers Infosys and TCS
Despite trimming earnings estimates and valuation multiples across the sector, JP Morgan retained an Overweight rating on Infosys and continued to list TCS among its preferred large-cap IT companies.
The brokerage believes these companies are better positioned to navigate the current slowdown because of stronger execution and relatively resilient growth prospects.
JP Morgan's preferred IT companies include:
- Tata Consultancy Services (TCS)
- Infosys
- Tech Mahindra
- Coforge
- Persistent
- Sagility
- Mphasis
For Infosys, JP Morgan expects:
- FY27-FY29 earnings estimates to decline by up to 2%
- FY27 constant-currency revenue growth guidance, excluding Optimum, to move to 1-2.5%, from 1.5-3.5%
- Guidance including Optimum to be 2.5-4%
Even after these revisions, the brokerage believes Infosys remains one of the better-positioned large IT services firms during the current market cycle.
HCLTech and Wipro face a tougher outlook
JP Morgan downgraded both HCLTech and Wipro to Underweight, reflecting a more cautious view on their medium-term performance.
For HCLTech, the brokerage expects the company to remain among the faster-growing large IT firms but believes the growth could come with structurally lower margins. It also said its FY27 and FY28 earnings estimates remain 5-8% below broader market expectations.
JP Morgan expects HCLTech to reduce its FY27 services revenue growth guidance to 1-3.5%, compared with the earlier expectation of 1.5-4.5%.
For Wipro, JP Morgan cited weaker revenue expectations and continued demand softness. The brokerage lowered its earnings estimates by 1-5% and expects the company to guide for sequential revenue growth of between -2% and 0% in the second quarter of FY27.
AI is reshaping the IT services model
The report suggests the industry's biggest challenge is not AI adoption itself, but the transition period.
According to JP Morgan, AI-driven productivity improvements are reducing demand for conventional IT services in the near term, while the next wave of AI-related enterprise investments has yet to scale.
Until that investment cycle gathers pace, the brokerage expects revenue growth across the sector to remain under pressure.