Indian IT risks FY27 guidance cuts from AI, geopolitics

JP Morgan analysts cut their Q1 revenue growth assumptions for every large-cap Indian IT firm they cover. The reason: delayed deal closures and slower ramp-ups. Clients faced budget uncertainty from AI spending shifts and geopolitical tensions.

The report said the industry has been stuck at 2-3% revenue growth for three years. With AI deflation in its second year, the analysts see further headwinds. They do not expect large-caps to hit mid-single-digit growth, instead forecasting 3-4% revenue growth over the next two years.

That 3-4% range is well below the historical 7-8% that the sector's valuation multiples were built on. The question is how quickly the market reprices the stocks.

The AI adoption cycle is in its early stages, JP Morgan wrote. The firm sees three phases: deflation and digestion, then reflation. Indian IT is in the first phase. GenAI-led productivity gains let clients do more with fewer vendors, squeezing revenue before AI services become large enough to offset the drag.

The report estimates deflation costs the industry 2-4% of revenue annually. The digestion phase could stretch past FY29, delaying a return to trend growth.

Nomura added a more immediate risk. The West Asia conflict is already affecting near-term revenue. Deal bookings in Q1 could suffer, and the indirect impact may stretch into Q2FY27. Certain verticals, particularly automotive, are pulling back spending.

MOFSL noted that the AI implementation opportunity may not accrue to traditional vendors. A new platform-based integrator template is emerging. "OpenAI's DeployCo (and Anthropic's services company) is the first credible blueprint of the next-gen system integrator," the MOFSL report said. Multiple vendors would survive, the report said, similar to past cycles. The transition period for the existing book of business will be painful.

Accenture already lowered its FY27 growth guidance. Indian IT peers typically follow Accenture's lead. Analysts expect them to cut after Q1, not wait until Q2, signaling deeper caution about demand.

Accenture, with an AlphaScore of 57 on its stock page, remains exposed to the same demand pressures. The sector's broader health is visible in our stock market analysis, which tracks the rotation away from traditional IT services into AI-native plays.

For investors, the risk is structural. Revenue growth stuck at 3-4% for large-caps, mid-caps growing only modestly until AI demand becomes a tailwind years from now, and a new competitor template that bypasses the old vendor stack. The first batch of large-cap IT results is due in late April.

[JP Morgan report cited.] [Nomura report cited.] [MOFSL report cited.]