India IT Sector Faces Sluggish Growth and AI Pressure

Analysts say the weak backdrop is not just about cyclical caution. Customers remain hesitant to start non-essential transformation work, even as some recent results — including Accenture Plc’s — suggest budgets are not vanishing so much as being redirected toward larger AI-led programs.

Tata Consultancy Services on Thursday beat profit expectations, but its sequential revenue growth was only 0.5% in constant-currency terms, underscoring how little top-line momentum remains in the industry’s largest name. Nuvama said the sector has underperformed sharply over the past nine months because of a negative narrative around GenAI platform companies and Gulf war-related uncertainty.

The market reaction has already been severe. The NSE Nifty IT Index has fallen 27% this year, pushing sector valuations to their lowest level since the pandemic. Infosys shares, for one, are down sharply over the past year and remain below their longer-term trend, reflecting how little investors are willing to pay for growth that is still missing.

The pressure is especially important for global investors because India IT has historically offered defensive exposure to the world economy. If AI adoption accelerates only at the largest customers while routine discretionary work stays frozen, the sector could face a slower, more uneven recovery than in past downcycles.

Still, some brokers argue the model itself is not broken. Antique Stock Broking said the shift toward AI-led transformation projects may support longer-term demand rather than eliminate it, and Nuvama argued that GenAI disruption could ultimately create bigger opportunities for established services firms.

For now, though, the burden of proof is on growth. With geopolitical risks still elevated and enterprise tech spending under pressure, investors will be watching the next round of quarterly results for signs that AI is translating into revenue, not just a new sales pitch.