New Delhi, March 9 India’s IT sector faces a 14-16 per cent AI‑driven deflation but robust US corporate earnings in Q4 2025 and incremental investment could offset much of the hit, a report said on Monday.
The report from HSBC Global Investment Research said these factors could lead to mid-single digit 'net' growth for some IT companies on a net basis.
Top US corporate results (clients of Indian IT) remain robust in Q4 2025 and notably, the forward earnings expectations of the S&P 500 were upgraded further.
“Improving business outlook and AI-led productivity gains should drive incremental investment in enterprise software migration, legacy tech modernisation and AI adoption," the report noted.
The research firm also predicted that Indian IT companies may shift away from 'beat-and-raise' guidance to more 'realistic to even aggressive' guidance.
"For both the believers and sceptics of AI there remains a lack of substantial real-world tangible case studies to support claims of AI cannibalisation of traditional software," the report said, adding that the AI narrative and uncertainty are driving the stock valuation de-rating.
"Unfortunately for the sector, there are no high-frequency data to counter the AI narrative," it said, pointing to FY27 guidance from major IT companies in April as the most important catalyst for the sector.
The macro backdrop is quite favourable for the sector as most top clients are reporting strong earnings. However, there could be some pause in spending due to the rapidly evolving frontier AI models and uncertainty around the adoption curve which could affect near-term demand, the firm forecasted.
Despite the short-term pressures on profitability, IT companies saw improving demand conditions in the December quarter, with artificial intelligence moving from experimentation to operational deployment and influencing deal pipelines and hiring.
Major IT companies have either revised or raised their revenue guidance for the year, while management commentary from other companies highlighted strong expectations around artificial intelligence-led growth.
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