The artificial intelligence wave is exposing deep structural cracks in India's IT services model, with Nilesh Shah warning that large firms may struggle to pivot quickly enough to keep pace with disruption. According to reports from CNBC-TV18, Shah stated that expectations of a recovery within 12–18 months may be too optimistic, given the scale of change required. He cautioned that inertia within large organisations could slow adaptation, noting that the AI wave isn't new—it's just more visible now. The sector's growth challenges predate the current disruption, with Shah highlighting that growth across major IT firms has remained modest despite strong digital demand.
Pointing to historical trends, Shah revealed that Infosys has grown about 7% in rupee terms over the past three years, translating to roughly 2–3% in dollar terms. As reported by CNBC-TV18, 10-year growth has averaged around 5% in dollars. He emphasized that the issue with IT is not the business model—it's the lack of growth, which has led to a steady de-rating of the sector. Shah noted that markets are increasingly rewarding sectors with clearer growth visibility, while IT continues to lag.
Sumeet Jain, Senior Research Analyst at CLSA India, highlighted that globally, IT services spending has grown at 3–4% over the last two decades. According to CNBC-TV18 reports, Jain noted that Indian firms have also lost market share momentum post-pandemic. He 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. The benefits from AI optimism have so far accrued more to software firms like OpenAI and Anthropic than to the broader IT services ecosystem.
Both experts emphasized that earnings growth will remain the key driver of valuations. As reported by CNBC-TV18, 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 noted that companies face difficult trade-offs between investing in AI capabilities and maintaining near-term profitability, stating that companies are 'damned if they do, damned if they don't'.
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. According to CNBC-TV18 reports, Shah added that meaningful transformation may require breaking away from legacy structures, suggesting that companies should identify pockets within the organization and build AI capabilities around them, potentially demerging these units to let them scale without legacy constraints.
