CLSA Says GenAI to Benefit Indian IT, Expects 5–7% Sector Growth in FY27

Indian IT services companies are set to gain from the rise of Generative AI (GenAI) rather than face disruption, according to Sumeet Jain, Senior Research Analyst at CLSA. Speaking at the CITIC CLSA India Forum 2025, Jain said the market is underestimating both the long-term GenAI opportunity and the near-term recovery in demand from the US.

GenAI Expected to Strengthen IT Services Model

Jain said fears about GenAI reducing revenue for Indian IT firms are misplaced. According to him, GenAI solutions are too complex for most enterprises to build independently.

“You need IT service companies to integrate those solutions,” he said, referencing CLSA discussions with experts at Nvidia and Salesforce, who emphasised the critical role of system integrators in deploying their technologies.

He added that the traditional headcount-led growth model is changing.

“It will not be a headcount-driven model anymore,” he said, noting that revenue per employee has been rising for the past three years. The trend is expected to continue as IT firms expand the use of proprietary AI agents and enterprise tools such as Microsoft Co-Pilot and Google Gemini.

Cyclical Tailwinds from the US Market

Jain said the US, which contributes 60–80% of Indian IT revenue, shows improving indicators. He cited the upcoming US mid-term election year and Bloomberg’s forecast of 13% earnings growth for the S&P 500, above the 10-year average.

“So positive both from a cyclical and a structural perspective,” he said, comparing the GenAI cycle to the multi-year cloud adoption cycle.

He also highlighted early signs of recovery:

“We have already seen some recovery signs in the recently concluded quarter,” he said, adding that year-on-year growth could improve within one to two quarters.

Growth and Margin Outlook

Jain expects Indian IT sector growth of 5–7% in FY27, higher than in FY26, though not returning to double-digit levels yet.

Margins, he said, should stay “very stable” as most spending is directed toward workforce reskilling rather than capital-intensive investments. He also noted that pricing gains, rupee depreciation, and increasing revenue per employee will help offset cost pressures.

Need for Capability-Led M&A

Jain said Indian IT firms should deploy more cash into capability-led mergers and acquisitions, pointing out that global peers such as Accenture have been more aggressive in expanding through specialised acquisitions.

Read More: Google Unveils Gemini Enterprise AI Platform for Businesses.

Conclusion

CLSA’s assessment suggests that GenAI will support the long-term outlook for Indian IT services, with system integration and AI deployment needs creating new demand. Alongside improving signals from the US market, the sector may see better growth momentum in FY27, supported by stable margins and ongoing reskilling initiatives.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.