Industry Odisha Bureau, Oct 02: Revenue growth at Indian IT firms is set to slow in FY27, BNP Paribas expects. AI is lifting productivity but deflating traditional revenue. Some mid-caps appear better placed than larger peers.
Artificial intelligence presents Indian IT with an awkward paradox. It makes engineers more productive. Yet the same efficiency can shrink revenue from traditional work. Coding agents such as Claude Code and ChatGPT can write code and fix bugs. They do so at a fraction of the cost of human labour. For a sector built on billing for effort, that changes the economics. BNP Paribas analyst Kumar Rakesh describes the effect as AI-driven deflation.
Growth Slows First
The pressure arrives amid weak demand. Clients remain cautious, and discretionary technology budgets are thin. Rakesh expects large-cap IT services firms to grow about 2% in FY27. That is year-on-year, in constant-currency terms. Most companies, however, will benefit from inorganic revenue this year. Adjusted for that, BNP expects median large-cap growth below 2%. Most firms will likely grow slower than in FY26, it estimates.
Global peers Accenture and EPAM have also trimmed forward guidance. That came amid macroeconomic pressures and pricing shifts.
Scale Cuts Both Ways
Large firms enjoy strong enterprise relationships and substantial scale. That scale helps them build deep partnerships with frontier model developers. Yet their broad portfolios carry a larger share of legacy services. BNP sees those services as increasingly vulnerable to AI-driven deflation. It expects large-caps to take longer shifting towards AI-led revenue.
Mid-Caps Find an Opening
Certain mid-cap firms may be better placed, BNP argues. Enterprises increasingly see some of them as catalysts for cost and technology disruption. That has helped them consistently gain market share, according to BNP. Within its coverage, BNP highlights Persistent Systems as a potential primary beneficiary. It notes enterprise AI adoption remains in its nascent stages.
The Headcount Equation Changes
The deeper shift concerns how IT firms earn money. Revenue has traditionally grown alongside headcount. Since FY22, BNP says, revenue growth has gradually decoupled from hiring. It expects that trend to accelerate. Firms are moving towards outcome-based models, billing for results rather than effort. Entry-level hiring has already slowed as AI spreads. Yet BNP sees the business-model change as gradual, not sudden.
Clients Move Slower Than Technology
The reason lies with clients. AI technology is evolving faster than enterprises can adopt it. Large legacy technology estates are complex and hard to overhaul. That slows implementation, even as AI tools improve rapidly.
Markets Price a Difficult Transition
Investors have already reacted. At the time of reporting, Nifty IT was down 27% in 2026. It had underperformed the benchmark Nifty 50.
BNP estimates AI-driven deflation could shave 3–4 percentage points off annual growth. Cyclical challenges could separately cut 2–3 percentage points, it adds. The brokerage believes current valuations largely reflect both risks. It expects Nifty IT to stay range-bound between 26,000 and 31,000. Guidance risks remain, though some are already priced in, Rakesh says.
Beyond Winners and Losers
Rakesh says investors are moving beyond a simple AI winners-versus-losers framework. The sector is leaving its “rising tide lifts all boats” phase. Service mix, legacy exposure and execution will increasingly separate companies. For Indian IT, AI will not produce one uniform outcome.
