Kotak Predicts AI-Driven Revenue Deflation for Indian IT Services

Kotak Institutional Equities reports that artificial intelligence-led productivity gains could cause annual revenue deflation of 3% to 3.5% in the Indian IT services market through FY2028. This trend occurs as IT firms use AI to deliver existing work more efficiently and pass those cost savings to clients, while new AI-driven business remains too small to offset losses from the larger existing revenue base.

The impact will be most severe in application development and customer experience business process outsourcing. Despite these challenges, the report notes that AI will not eliminate the need for IT services, as deployment still requires data engineering, security, and integration with legacy systems.

The firm expects the deflation phase to last through FY2027-28, with a crossover to growth beginning around FY2029. Consequently, growth is not expected to exceed 5% before that time.