- Indian IT sector faced a 25% correction amid fears over Gen-AI disrupting traditional models
- Gen-AI's deflationary impact rose to 6-7%, causing sector uncertainty and slower growth
- Growth depends on winning new deals as renewals stagnate and pricing models evolve
NDTV Profit's special research section collates quality and in-depth equity and economy research reports from across India's top brokerages, asset managers and research agencies. These reports offer NDTV Profit's subscribers an opportunity to expand their understanding of companies, sectors and the economy.
HDFC Securities Institutional Equities
The Indian IT sector has endured a sharp 25% correction over the past three months, fuelled by investor fears that Gen-AI platforms like Claude (by Anthropic) and Palantir could upend traditional SaaS and IT services models.
Yet the industry demonstrates resilience, contending that deploying these unproven technologies in complex, "brownfield" regulatory landscapes prove far more challenging than the hype implies. As noted in the brokerage's December 2025 sector update, it initially pegged AI's deflationary impact at ~4%, anticipating offsets from fresh deal wins. However, the recent Gen-AI product launches have intensified this narrative, lifting deflation to 6-7% and thrusting the sector into a phase of uncertainty and slow growth.
Growth recovery now pivots on securing net-new deals, with renewals stagnating at subdued rates and pricing evolving from pure effort-based to effort-plus-agents structure. Success boils down to execution and AI prowess in outcome-driven settings.
HDFC Securities stays constructive that the IT services model survives, with Gen-AI models ultimately unlocking net-new opportunities worth $300-400 billion.
Following the correction, valuations have reverted to pre-COVID levels; reverse DCF analysis shows current prices implying terminal growth of just 2-3% (versus prior 5-6%), alongside 10-year growth of ~4% for large caps and ~8% for midtiers.
The brokerage thus trims FY27/28E revenue estimates by 2-3% and align multiples to pre-COVID levels for tier-1 firms.
Tier-1 picks: Infosys, Tech Mahindra, and HCLTech.
Mid-tier preferences: LTMindree, Mphasis, Birlasoft, and Sonata.
Click on the attachment to read the full report:
ALSO READ: India's Textile Industry Sees 20-25% Surge In Raw Material Costs
DISCLAIMER
This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.
Users have no license to copy, modify, or distribute the content without permission of the Original Owner.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
