India’s IT services industry could see growth improve over the next two years as enterprises increase their use of artificial intelligence (AI), according to Mohandas Pai, Chairman of Aarin Capital and former CFO and board member at Infosys. Pai said Indian IT companies are preparing to help large businesses adopt AI, even as the technology changes how software services are delivered.
Bhavin Shah, Founder, CIO and CEO of Sameeksha Capital, expects largecap IT stocks to deliver annualised returns of around 8–10%, depending on portfolio composition. He said revenue growth remains constrained by AI-led productivity gains, but cash generation could support the investment case for some companies.
The outlook comes as the US Department of Labour’s reported suspension of Permanent Labour Certification (PERM) processing for certain technology companies raises concerns over employment-based green card applications. Pai expects the move to have limited impact on Indian IT services firms, pointing to their increased local hiring in the US and the long wait for green cards.
AI adoption could support IT services growth
Pai said global spending on AI infrastructure, cloud computing and large language models has increased, but many enterprises are still cautious about deploying AI in core business systems because of security and regulatory concerns.
As companies move beyond initial AI experiments and expand adoption, IT services providers could help them integrate the technology into existing software systems.
“The model works because you still need an intermediary for large enterprises to use the benefits of new technology,” Pai said.
He expects growth to improve as businesses begin using AI more widely. Referring to the industry’s outlook, Pai said, “I think in the next two or three years we’ll see some growth.”
He also cited the growth of AI services at Indian IT companies, noting that TCS had reported an AI services revenue run rate of $3 billion. He expects other major Indian IT companies to report developments in this area as well.
IT stocks could deliver 8-10% returns: Bhavin Shah
Shah said Indian IT services companies face constraints on revenue growth because of AI-driven productivity improvements and other industry changes. He cited Tata Consultancy Services (TCS) results as an indication of the low-single-digit growth environment, while noting that largecap IT stocks were trading at free cash flow yields of around 5–6%.
“8-10% kind of return is what we can expect now,” Shah said, referring to potential annualised returns from largecap IT stocks.
He added that the suitability of IT shares depends on an investor’s portfolio and return expectations, as other large-cap sectors also offer investment opportunities.
Mohandas Pai sees limited impact from US green card suspension
Pai said the reported suspension of PERM processing was unlikely to have a significant effect on Indian IT services companies. The PERM labour certification process is a step in many employment-based green card applications.
He pointed to long processing queues and changes in the staffing models of Indian technology companies. According to Pai, many IT services firms now employ 60–70% local staff in the US, compared with around 25–30% a decade ago.
He also said Indian IT companies need to train employees in AI, develop specialised models that combine domain expertise with technology, and strengthen security as they integrate AI tools into enterprise systems.
Pai argued that IT services firms act as intermediaries between technology innovators and large businesses, helping enterprises implement new technologies rather than necessarily developing every underlying technology themselves.
The sector’s outlook will depend on how quickly enterprise AI adoption expands, how effectively companies adapt their services and whether revenue growth improves over the next two years.
For the full interview, watch the accompanying video
Bhavin Shah expects 8-10% returns from IT stocks; Mohandas Pai defends India’s IT services model
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