New Delhi, April 29 -- The Indian IT services sector faces a prolonged phase of slower growth and margin pressure as AI-driven budget shifts crowd out traditional services spending, with no meaningful recovery in sight for FY2027, according to a brokerage report. While total technology spending is accelerating, the incremental dollar is flowing into GPU infrastructure, foundation models and AI software rather than services, compressing the pie for Indian vendors.

The brokerage noted that AI deflation is becoming a reality, with the industry's base case set at 3.5 per cent pricing erosion, first surfacing through renewals of large multi-year contracts rather than initial GenAI pilots. "Clients working with AI in production demand efficien...