Speaking to CNBC-TV18, Shah said expectations of a recovery within 12–18 months may be too optimistic, given the scale of change required. “This would require a complete pivot. How do you reorient hundreds of thousands of employees? How do you change the DNA built over 30–40 years? I’m not sure large companies can achieve that in such a short time,” he said.
He cautioned that inertia within large organisations could slow adaptation, even as the AI shift accelerates. “Sometimes you don’t have a choice, but inertia is powerful. The AI wave isn’t new—it’s just more visible now,” Shah noted, adding that the sector’s growth challenges predate the current disruption.
Pointing to historical trends, he said growth across major IT firms has remained modest despite strong digital demand. Over the past three years, Infosys has grown about 7% in rupee terms, translating to roughly 2–3% in dollar terms, while 10-year growth has averaged around 5% in dollars. “The issue with IT is not the business model—it’s the lack of growth,” he said, adding that this has led to a steady de-rating of the sector.
Shah also highlighted that markets are increasingly rewarding sectors with clearer growth visibility, such as power utilities linked to data centre demand, while IT continues to lag. He warned that without a return to double-digit growth, sustained re-rating would remain elusive.
From a structural perspective, Sumeet Jain, Senior Research Analyst at CLSA India, said near-term visibility remains clouded by an emerging deflationary narrative driven by AI. “Globally, IT services spending has grown at 3–4% over the last two decades,” he said, noting that Indian firms have also lost market share momentum post-pandemic.
Jain flagged the rapid rise of Global Capability Centres as a key headwind, with multinational companies increasingly building in-house capabilities rather than outsourcing to traditional IT vendors. He added that while AI optimism has been fuelled partly by the rally in chipmakers, the benefits have so far accrued more to software firms like OpenAI and Anthropic than to the broader IT services ecosystem.
“The key question is AI-driven deflation versus incremental volume growth,” Jain said, adding that the sector is moving towards a “services as software” model, where delivery is increasingly powered by AI.
Both experts emphasised that earnings growth will remain the key driver of valuations. Jain said firms that are willing to pass on productivity gains to clients and aggressively pursue market share are better placed in the current cycle. He named Persistent Systems and Coforge as preferred picks, citing their stronger growth outlook and deal momentum.
Shah, meanwhile, said companies face difficult trade-offs between investing in AI capabilities and maintaining near-term profitability. “Companies are ‘damned if they do, damned if they don’t’,” he said, urging managements to take a longer-term view even if markets react negatively in the short run.
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He added that meaningful transformation may require breaking away from legacy structures. “I would identify pockets within the company… and build AI capabilities around them. If needed, I would demerge these units and let them scale without legacy constraints,” Shah said.
On investor sentiment, Jain said a renewed focus on innovation and higher research and development spending will be critical to attracting foreign capital back into the sector, as companies look to reposition themselves in an AI-led technology landscape.
