New Delhi, May 3 -- Artificial intelligence (AI) is increasingly reshaping the growth and margin outlook for India's IT services sector, with firms facing rising pricing pressure even as new demand opportunities emerge, according to a recent sector report by Kotak Institutional Equities.

The report flags higher competitive intensity amid demand and AI headwinds, noting that AI-led productivity gains are now being passed on to clients, resulting in what it terms "AI-deflation."

It adds that industry players indicate "pricing pressure in renewals due to client expectations of higher productivity pass-through driven by GenAI adoption," alongside intensified competition.

A key shift underway is the rise of large transformation deals, drive...