Gen AI not an existential threat: Nuvama predicts $300-400 billion market expansion for Indian IT services 

After the tech sector delivered stable execution in Q1FY27, Nuvama expects growth momentum to improve in Q2FY27 as well as several large deals enter the ramp-up phase.

“We do not see any existential threat from Gen AI, but do believe that in the near-term IT Services firms shall face cannibalisation of revenue (which they are facing currently) before they reach inflection point,” Nuvama noted.

Gen AI could expand IT services market to $400 billion

Gen AI, the brokerage house pointed out that, is feared to create some pressure on traditional IT services revenue in the near-term as automation reduces the amount of work required for certain services.

Nuvama, however  does not see Gen AI as an existential threat to the IT services industry. Instead, they estimate, Gen AI opportunity to eventually expand the total addressable market (TAM) for IT services to around $300-400 billion by 2030.

AI demand shifts from pilots to production

This optimism is coming after AI adoption continued to move beyond pilot projects towards production-scale deployments. Enterprises are focusing more on productivity gains and measurable business outcomes from AI investments.

In Q1FY27, the sector saw large AI-led deals especially for Tata Consultancy Services and HCLTech. Nuvama expects more such deals as Gen AI adoption increases across enterprises.

The brokerage noted that large enterprises are increasingly asking IT services companies to build an application layer on top of different large language models (LLMs).

Such an architecture can allow companies to switch between AI models and optimise token costs. Nuvama expects demand for these services to increase over the coming quarters.

Q2FY27 growth outlook remains strong for tech sector

Nuvama expects Q2FY27 to be stronger for the IT services sector. Companies including TCS and Mphasis have specifically pointed to a strong second quarter, while Infosys and HCLTech are also expected to benefit from seasonal factors and large client deals.

The brokerage said revenue growth in Q1FY27 was broadly in line with expectations, while margins were also largely in line or better than estimates.

Large deal ramp-ups, vendor consolidation and continued demand for AI and cloud services supported growth. However, discretionary spending remained selective and decision-making cycles continued to be longer.

Global technology spending is also increasingly shifting towards AI, cloud, SaaS, IaaS and AI-agent technologies, creating stronger growth opportunities in these newer areas. “Macro uncertainty and geopolitical volatility continues, though tech demand remains healthy, led by AI infra, cloud adoption and hyperscaler investments. Managed Services remained muted but positive, with BPO rebounding while ITO and ER&D softened.” Nuvama said. 

Nuvama remains positive on IT sector 

Along with Gen AI, Nuvama expects Indian IT companies to benefit from improving deal execution and healthy deal pipelines.

The Nifty IT index has declined sharply by 16.93% so far in 2026. Nuvama remains positive on the sector from a medium- to long-term perspective.

“After the sharp correction, we find valuations highly attractive,” Nuvama said. It expects volatility to persist in the near term.

Disclaimer: The market insights and sector projections featured in this article reflect the research and views of Nuvama Research and are presented strictly for informational and educational purposes. This report does not constitute personalized investment advice, a stock recommendation, or a solicitation to buy or sell any listed securities. Financial markets carry inherent risks, and readers should conduct independent research or consult a SEBI-registered financial advisor prior to making any investment decisions.

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