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IT Sector Growth to Slow in Tech Cycle Shift, Says Morgan Stanley

A Morgan Stanley report indicates the IT services sector is entering a transition phase within a new technology cycle, which historically leads to moderated growth. The spending multiplier linking IT services to US nominal GDP growth is expected to remain low during this period, similar to past cycles like 2013-2017. The analysis notes that Global Capability Centres (GCCs) may currently show stronger growth momentum compared to traditional third-party IT services companies. Overall, sector growth may slow temporarily before potentially accelerating as the new cycle matures.

Key Points: IT Sector Growth to Moderate in Tech Transition: Morgan Stanley

  • IT spending growth may lag US GDP
  • Historical tech cycles show slowdown phases
  • Multiplier effect weakens during transition
  • GCCs may outpace third-party IT firms
3 min read

IT sector growth to moderate as past trends show slowdown during technology transition cycle: Morgan Stanley

Morgan Stanley report predicts moderated IT services spending growth during new technology cycle transition, citing historical slowdown patterns.

IT sector growth to moderate as past trends show slowdown during technology transition cycle: Morgan Stanley
"We think IT Services spend multiplier to US nominal GDP growth rate could remain low in the transition phase - Morgan Stanley report"

Mumbai, March 5

The information technology sector is expected to experience moderated growth during the transition phase of a new technology cycle. According to a report by Morgan Stanley, spending on IT services may increase at a slower rate compared to the overall growth of the United States economy.

The report stated that the IT services spending multiplier to US nominal GDP growth could remain low during the transition period of the new technology cycle. This indicates that even if the US economy grows, the pace at which IT services spending rises may not match earlier technology cycles in the near term.

It stated "We think IT Services spend multiplier to US nominal GDP growth rate could remain low in the transition phase of the new technology cycle".

The analysis highlights that India's IT services exports growth has historically been closely linked with the US economy. However, during periods of technological transition and macroeconomic uncertainty, the multiplier effect between US nominal GDP growth and Indian IT exports tends to weaken.

Analysis of previous technology cycles shows that there were phases where growth slowed before accelerating again. During the early phase of the cloud computing cycle, revenue growth of Indian IT services companies moderated before witnessing a stronger acceleration in later years.

The report pointed out that there was a prolonged slowdown period for India's IT exports in the past when the multiplier effect dropped to around 0.9x during 2013 to 2017. However, growth picked up again during the digital and cloud cycle around 2017 to 2020, when the multiplier improved to around 2.3x and later after Covid to about 2.6x.

More recently, since mid-2025, during a period of macro slowdown, the multiplier was around 2.2x. Going forward, Morgan Stanley expects that with the ongoing transition to a new technology cycle, the multiplier could remain relatively low again, similar to earlier transition phases such as the one seen in 2016-17.

The report also noted that revenue growth of India's top IT services companies has been lagging behind the broader growth in India's IT and IT-enabled services exports.

This suggests that growth momentum could currently be stronger in Global Capability Centres (GCCs) compared with third-party IT services companies.

According to the analysis, stronger growth in GCC exports compared with third-party services companies may be one of the factors influencing the overall growth pattern in the sector.

Overall, the report indicates that the Indian IT sector may go through a transition phase in the near term, where growth may moderate before potentially accelerating again as the new technology cycle develops.

- ANI

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Reader Comments

R
Rohit P
Worrying news for someone like me with family in IT. The 2013-2017 slowdown was tough. Hope the companies have learned and are better prepared this time with more AI/automation skills. The shift to GCCs is interesting - maybe job security is better there now?
A
Arun Y
The report makes sense but feels a bit too focused on the US. Indian IT needs to diversify its client base more aggressively. We are too dependent on one market. This is a wake-up call to look at Europe, APAC, and even domestic digital transformation projects.
S
Sarah B
Working in a GCC in Bangalore, I can confirm the growth momentum here is strong. We are constantly hiring for new roles in data and AI. The article's point about GCC vs. third-party services growth seems accurate from the ground level.
V
Vikram M
It's a cycle, just like the monsoons. Slowdown, then boom. The smart thing is to use this 'moderated growth' phase to upskill. Anyone in IT not learning about AI tools and platforms right now is making a big mistake. Future proof yourself.
K
Karthik V
While I respect Morgan Stanley's analysis, I have a slightly different take. The multiplier effect might be low, but the absolute size of the US economy and IT spend is now much larger. So even a lower multiplier on a bigger base could mean decent absolute growth for Indian exports. Let's not panic.

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