AI winners and losers are emerging in Indian IT, says BNP’s Kumar Rakesh

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MUMBAI: The rapid evolution and adoption of artificial intelligence (AI) are reshaping the narrative, valuations and share-price performance of India’s IT sector. Against the backdrop of cautious client spending and weak discretionary budgets, most IT companies are likely to see revenue growth slow in fiscal year 2027 (FY27) from FY26, according to Kumar Rakesh, India analyst - IT and auto at BNP Paribas.
While macroeconomic headwinds and concerns over generative AI disrupting traditional business models persist, some mid-cap firms are better positioned than their larger peers, which remain more exposed to AI-driven deflation. As a result, investors are moving beyond a simplistic “AI winners versus losers” framework towards a more nuanced approach to stock selection.
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September quarter (Q2FY27) earnings are around the corner, and expectations are low. Weak discretionary technology spending and concerns over generative AI disruption continue to shape the narrative. Large-cap Indian IT firms, in particular, are struggling with muted revenue growth as they defend their turf. What is a realistic constant-currency revenue growth figure to expect in FY27?
We see large-cap IT services companies reporting close to 2% year-on-year constant-currency growth in FY27. However, most companies will have a tailwind from inorganic revenue contributions this year. Adjusted for that, we see median growth for large-cap IT services companies coming in below 2% this financial year.
For most companies, FY27 will see a slowdown in revenue growth compared with FY26.
How resilient are tier-1 and tier-2 Indian IT firms in responding to two opposing risks: weaker traditional demand as AI adoption accelerates, and tighter tech budgets if global clients see delayed returns on their AI investments? Which companies have an edge here?
We see the transition towards a revenue mix driven by AI-led services taking longer for large-cap IT services companies, owing to the breadth of their diversified service portfolios. Although these firms have strong enterprise client relationships and the scale needed to establish deep partnerships with frontier model developers, they also have a higher proportion of legacy services, which are increasingly vulnerable to AI-driven deflation.
Conversely, certain mid-cap IT services firms are increasingly being recognized by enterprises as catalysts for cost and technological disruption, enabling them to consistently capture market share. While the enterprise AI adoption cycle remains in its nascent stages, Persistent Systems, within our coverage, demonstrates significant potential as a primary beneficiary of this transition.
Advanced AI tools and coding agents such as Claude Code and ChatGPT can write code and fix bugs at a fraction of the cost of human labour. AI has already slowed fresh hiring at the entry level. Are we headed for widespread layoffs? Will AI make billing-based headcount models obsolete?
IT services providers are increasingly pivoting towards outcome-based revenue models. Since FY22, revenue growth at IT services companies has begun to decouple incrementally from headcount expansion, a trend we expect to accelerate in the coming years.
However, we see the pace of enterprise AI adoption lagging the rapid evolution of AI technology, constrained by the complexity of large-scale legacy technology estates. Hence, while the revenue models of IT services firms are undergoing a structural transformation, we expect this transition to be gradual.
With global IT bellwethers such as Accenture and EPAM trimming forward guidance amid macro pressures and pricing shifts, should investors brace for further downward revisions and a potential panic in Indian IT stocks?
We see potential risks to the revenue growth guidance of Indian IT services companies, as growth appears modest despite a seasonally strong September quarter. However, we believe a portion of this risk is already reflected in recent share-price performance.
The Nifty IT index is down 27% so far in 2026, underperforming the benchmark Nifty 50. Have the structural impacts of AI already been fully priced into Indian IT valuations, or will the debate around revenue deflation continue to weigh on sector multiples? What are the key sector triggers?
We expect the sector to bottom at levels that already incorporate the impact of AI-driven deflation—a 3–4 percentage-point impact on annual growth by our estimate—alongside ongoing cyclical challenges, which we estimate could have a 2–3 percentage-point impact on annual growth.
According to our calculations, current valuations largely reflect both risks. We expect the sector to remain range-bound, with the Nifty IT Index trading between 26,000 and 31,000. Key drivers of sectoral volatility will include progress on cyclical headwinds, notably the West Asia conflict, investor positioning and the evolving “AI winner” narrative.
Investors are increasingly moving beyond a binary “AI winners versus losers” framework towards a more nuanced approach to stock selection within these cohorts. We are transitioning from a “rising tide lifts all boats” phase towards a period of more differentiated stock picking, with the initial distinction between winners and losers already emerging within the IT services sector.

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