New Delhi, March 6 Earnings estimates of IT firms for FY27 have been lowered by 1 per cent, while target multiples for large‑cap IT services and BPO firms have eased amid uncertainty around AI adoption, a report said on Friday.
Emkay Global Financial Services Ltd in its report trimmed FY27 and FY28 earnings estimates of large‑cap IT services companies by 1 per cent and 2 per cent, respectively.
The "implied terminal growth for covered large‑cap IT services companies" for these companies is now 5–6 per cent in rupee terms considering the past decade’s trends, it said.
Further, the firm also cut target multiples by roughly 20 per cent for IT services and 32 per cent for BPOs.
"We believe steady operating performance and relevant disclosures to gauge progress on the tech shift will drive investor confidence and recovery in valuations," the report said.
The firm conveyed expectations of consistent performance delivery, along with clearer disclosures on progress over the next few quarters, to gradually restore confidence in the business model, possibly warranting a reconsideration of ratings.
Nifty IT is down 13 per cent and 17 per cent compared to Nifty over one‑month and three‑month periods respectively, driven by concerns over the sustainability of the business model and fears that AI advances could disrupt Indian IT Services, the report further said.
As clients grapple with a rapidly evolving tech landscape and complexity of integrating AI into legacy systems, the firm forecasted IT Services companies to move up in the value chain from effort-based execution to consulting-led strategic partnerships as trusted advisors.
The firm said AI is reshaping the IT Services landscape by automating repetitive, high-volume tasks -- once handled by junior engineers, while the traditional staffing pyramid is also flattening as AI agents reduce billable volumes.
GenAI delivers material productivity gains in testing, documentation, and legacy migration, raising client expectations for cost savings, especially during renewals, it added.
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