India’s information technology services industry may be nearing a recovery phase after two years of muted performance, with analysts at Nomura expecting a modest improvement in revenue growth and profitability
by FY27. The revival is likely to be supported by easing macroeconomic pressures and a clearer monetisation path for artificial intelligence (AI)-led services.
‘AI Loser’ Fears Seen as Overdone
In its 2026 sector outlook, Nomura analysts Abhishek Bhandari and Karan Nain noted that subdued top-line performance has weighed on investor sentiment, with industry revenues growing just 1.8 percent in FY25 and an estimated 2.9 percent in FY26. This slowdown has fuelled concerns that automation could shrink traditional IT revenue pools, turning the sector into a net “AI loser.”
Nomura, however, believes this narrative is overly pessimistic. It views the current weakness as cyclical rather than structural, pointing out that every major technology shift in the past has expanded the overall addressable market for IT services. As enterprises embrace more complex digital and AI-driven systems, system integrators are expected to remain central to connecting diverse technology platforms.
The brokerage added that the present slowdown is largely driven by early-stage AI-related price deflation and a cautious global macro environment. With clients focused on cost optimisation, discretionary tech spending has softened and fresh digital projects are being deferred. Nomura’s analysis of Global 2000 companies suggests that demand conditions in 2026 are likely to mirror 2025—stable but unspectacular.
AI Monetisation Upswing Seen in 12–18 Months
Against this backdrop, Nomura expects revenue growth for its large-cap IT coverage to improve to 4.5 percent in FY27, higher than FY26 levels. Mid-cap IT companies, which have outperformed consistently over the past two years, are likely to maintain their growth edge. A faster interest-rate easing cycle and easing global trade tensions could offer additional support.
The brokerage expects a more meaningful growth inflection once AI adoption moves beyond pilot projects. Leading Indian IT firms are already investing heavily by embedding AI into internal operations, redesigning service offerings, strengthening client-facing AI programmes, and forming ecosystem partnerships. While early transitions from pilots to standalone deployments have begun, larger revenue pools are expected to open up only when enterprises standardise data and scale AI usage across business functions—something Nomura expects over the next 12–18 months. This shift should also rekindle demand for cloud and data modernisation services.
Margins to Improve Modestly
Profitability is also expected to improve gradually as revenue growth picks up. For FY27, Nomura forecasts an expansion of 30 basis points in average Ebit margins for large-cap IT firms under its coverage, while mid-cap margins could rise by about 50 basis points. Ongoing investments in AI are unlikely to cause any material pressure on margins.
Valuations Attractive, But Selectivity Key
While valuations across the sector remain appealing, the brokerage remains selective in its stock calls. It has rolled its valuation framework forward to H1FY28 while retaining existing target multiples. Companies that deliver above-industry growth are expected to outperform.
Nomura’s preferred large-cap picks include Infosys and Cognizant. Among mid-caps, it favours Coforge, while eClerx is its top small-cap choice. The brokerage maintains a contrarian ‘Buy’ on Wipro and continues with a ‘Reduce’ rating on L&T Technology Services.
