A new report from CLSA projects that while India’s IT sector faces near-term revenue challenges from productivity-driven deflation, artificial intelligence-led demand will drive meaningful growth by the end of the decade.
- AI initially compresses revenues but boosts volumes over time
- Industry growth inflection expected around FY28
- AI spending share in IT services to double by 2029
What happened
A CLSA report analyzing the Indian IT services sector finds that AI is poised to become a significant net growth driver by FY30. Though the sector currently faces multiple macroeconomic and microeconomic challenges, including weaker discretionary spending and geopolitical uncertainty, AI adoption is predicted to accelerate demand for IT services.
CLSA projects that while revenue deflation may occur initially due to AI-powered productivity gains being passed on to clients, the increase in AI-driven volumes will outweigh this effect by FY30. The brokerage forecasts mid- to high-single-digit US-dollar revenue growth in the IT sector by FY31, supported by expanding AI-related demand across software, services, and hardware domains.
Why it matters
The report signals a long-term positive outlook for India’s IT services industry despite near-term challenges. AI’s impact on productivity could initially shrink revenue growth, but this will create opportunities for new types of IT engagements and expanded service volumes as enterprises increase AI investments.
This transformation is critical as the sector addresses intensifying competition, shifting client budgets, and structural pressures from global capability centers. The expected doubling of generative AI’s share in IT services spending to 11% by 2029 implies a sizable shift in client technology demand, emphasizing AI applications and platforms. Indian IT firms that align with this trend could benefit substantially.
What to watch next
Industry observers should monitor developments around FY28, which CLSA highlights as a key turning point for stronger IT services growth. The trajectory of AI-driven volumes versus revenue deflation will be crucial to validate the forecasted inflection and near-term potential for sustainable expansion.
Additionally, tracking shifts in large client deal activity and IT budget allocations globally will provide insight into how AI spending distribution evolves between software, services, and hardware. Indian companies will need to innovate and adapt to maintain and grow their share of the burgeoning AI-related technology spend.