Indian IT services face AI-driven revenue deflation through FY28

The Indian IT services sector is facing near-term revenue challenges driven by artificial intelligence-led productivity gains. According to Kotak Institutional Equities, AI-driven efficiencies could result in annual revenue deflation of 3% to 3.5% through FY2028, as companies pass cost savings to clients. New AI-related demand is not expected to offset this pressure until approximately FY2029.

Despite these headwinds, the sector has maintained stable profitability through effective cost-control measures and favorable currency movements. Reports from Systemix indicate that while large-cap companies saw modest constant-currency growth, performance varied, with Tech Mahindra showing strength while Infosys, HCLTech, and Wipro experienced subdued growth.

In the midcap IT segment, revenue growth is expected to remain muted through FY27 due to AI-led deflation and delayed deal ramp-ups. However, brokerage firm Anand Rathi remains cautiously positive, anticipating improved deal conversion and operating leverage in the second half of the fiscal year, particularly for execution-focused companies benefiting from vendor consolidation.