Weak macroeconomic conditions will continue to constrain IT spend for another three years, says S&P’s Chi Yang Leong

Weak macroeconomic conditions have constrained IT spending over the past three years and this trend will continue as revenue visibility is likely to weaken with AI is reshaping the market landscape over the next three years, predicted Chi Yang Leong, Credit Analyst at S&P.

AI was a megatrend that could disrupt the business models of India-based IT companies, said Mr. Leong adding, whether Indian IT companies can maintain consistent revenue growth will depend on their ability to meet the changing needs of their customer mix. “Rated Indian IT firms have strong market positions and are deeply integrated into customers’ workflows. Hence, we believe the impact of AI on Indian IT firms could be uneven and more pronounced after 12–24 months, in which there are risks and opportunities,” he told The Hindu.

While AI would reduce demand for certain low-skilled labour, such as coding and testing, it could also expand demand for services like consulting and digital transformation. “As GCC demand increases, Indian IT firms could also leverage existing relationships to remain preferred GCC partners. An increasing shift to outcome-based contracts will also test Indian IT companies’ margins amid rising AI-related investments and macroeconomic uncertainties,’’ he added.

Responding to a query on how AI disruption would impact revenues of Indian IT services firms, Mr. Leong said, “We will see a pronounced impact after 12-24 months. For now, much of these companies’ revenues derive from services, cloud-related digital transformation and IT consulting, that are less susceptible to AI disruption.’’

While Indian IT companies were improving their services, metrics such as revenue per employee and AI-related bookings could increasingly reflect their strength, he further said. “How quickly and effectively these firms shift from offering manpower to selling expertise and solutions in the AI era may be a determining factor.’’

According to him, Accenture PLC, a Dublin-based global technology consulting and services company, recently revised its full-year revenue guidance to 3-4% from 3-5%. “We expect Infosys, HCL Tech, and Wipro to generate revenue growth of 2.0-4.0% over fiscal 2027 (year ending March 31, 2027) and 2028, compared with 4.0-6.0% in fiscal 2026,’’ Mr. Leong forecast. “AI is a double-edged sword for Indian IT companies. It threatens their old business model like a robot replacing factory workers, but also opens new doors if they can adapt and become the robot’s operator, trainer, or fixer,’’ he commented.