HSBC has warned that artificial intelligence has shifted from being a tailwind to a structural threat for India’s information technology services industry, with pricing pressure from AI already weighing on a significant slice of sector revenues and expected to intensify over the next two years. The brokerage argues that Indian IT is now caught in a “lose-lose” situation as AI adoption accelerates, challenging the industry’s traditional labour‑arbitrage model.
According to HSBC India’s head of research Yogesh Aggarwal, around 15-20% of Indian IT revenue is already facing AI-led pricing pressure, and as much as 35-40% could be exposed by FY27 as clients use automation to reduce spending on traditional outsourcing contracts. He told CNBC-TV18 that FY27 is likely to be “the worst year in terms of the negative AI impact,” with sector revenue growth expected to be broadly flat in a 0-2% range before improving gradually in subsequent years.
Aggarwal said the core risk for Indian vendors is that AI disrupts demand irrespective of the broader technology spending cycle. If global enterprises accelerate AI investments, they may internalise more work and automate tasks that were previously offshored, while a slowdown in AI spending would still cap overall tech budgets and limit new business for Indian firms. HSBC expects sector growth to recover only slowly, with low single-digit expansion in FY28 and a return to mid-single-digit growth by FY29 as the immediate deflationary impact of AI fades.
The warning comes as other global brokerages also turn more cautious on the long-term trajectory of Indian IT. JPMorgan recently said it does not expect large Indian IT companies to return to their earlier average growth band of 7-8%, projecting that revenue will instead settle in the 3-4% range in the foreseeable future as AI-driven transformation and weaker discretionary spending drag on demand. It also flagged the risk of an extended slowdown in deal ramp-ups and project budgets as clients reassess their technology roadmaps in light of generative AI.
HSBC’s report has coincided with renewed pressure on Indian IT stocks ahead of the June-quarter earnings season. Shares of Tata Consultancy Services, Infosys and HCL Technologies declined this week, dragging the Nifty IT index into the red as investors digested the brokerage’s thesis that AI could remain a structural headwind for several more years. Aggarwal, however, contends that valuations at 12-14 times forward earnings now reflect much of the bad news, limiting further downside even as earnings estimates face the risk of downgrades.
Despite the near-term gloom, Indian IT companies are stepping up efforts to reposition around AI and automation. AI-related hiring at major firms rose 16% year-on-year even as overall technology hiring fell 3%, underscoring a shift in skills demand towards machine learning, data engineering and generative AI capabilities.
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