A CLSA report projects that artificial intelligence may emerge as a net expansion catalyst for India's IT services sector over the long term, with AI-driven volumes forecast to outpace automation-related revenue headwinds by the 2030 financial year. The document notes that near-term growth may be constrained by sluggish economic conditions and a pullback in discretionary spending among consumers.

The firm acknowledged that the sector faces a range of broader and sector-specific pressures, while anticipating that artificial intelligence will ultimately unlock fresh avenues for expansion. The firm forecast that artificial intelligence may initially weigh on revenues as efficiency gains are transferred to customers, though AI-driven transaction volumes are projected to outpace that pricing pressure by the 2030 financial year.

According to the forecast, dollar-denominated revenues across the sector are expected to climb at a mid- to high-single-digit annual rate by FY31, underpinned by growing demand tied to artificial intelligence. The firm also foresees a potential turning point for the sector over the next 18 to 24 months, with FY28 highlighted as a period likely to bring stronger expansion.

The firm projected that artificial intelligence would weigh on systems integrators in the near term while delivering advantages over a longer horizon. CLSA indicated that artificial intelligence is poised to deliver robust expansion potential over the longer term, even as it weighs on revenues in the near term.

The findings additionally highlighted an absence of measurable evidence pointing to any notable pullback in large-scale deals or technology-services spending by major global corporations attributable to artificial intelligence. Expenditure on artificial intelligence is forecast to grow at a considerable pace.

Projections from CLSA and IDC, as referenced in the report, forecast that generative AI's portion of total IT services expenditure will reach 11 percent by 2029, up from around half that figure today. Expenditure on technology tied to artificial intelligence is forecast to grow across hardware, software and services, with platforms and applications in that space expected to record especially robust gains.

Indicators point to a degree of durability in demand for Indian information technology services. According to CLSA's findings, the majority of firms recorded annual expansion in their order books, driven by deals focused on reducing expenditure and consolidating suppliers. The firm's analysis also pointed to higher output per worker among tracked companies, a trend attributed to increased adoption of AI-driven tools in operations.

Heightened rivalry in the marketplace, alongside subdued consumer spending on non-essential goods, geopolitical volatility, and ongoing structural headwinds from global capability centres, continue to pose challenges. The brokerage also flagged the possibility that IT services could lose ground in worldwide AI expenditure to hardware and software providers.

According to the brokerage, a central issue going forward is whether demand fuelled by artificial intelligence can expand rapidly enough to counterbalance the revenue compression arising from productivity improvements, with that equilibrium anticipated to shift favourably around FY30–FY31.