NewKerala.com

No AI Deflation or War Impact on IT Sector in Q4 So Far: CLSA

A CLSA report indicates the Indian IT sector has not experienced deflationary pressure from new AI tools or significant disruption from the US-Iran conflict in Q4 FY26 so far. The brokerage's discussions with major firms like TCS and Infosys revealed stable demand, particularly in BFSI and technology verticals. While some clients have delayed decisions to assess AI potential and due to Middle East uncertainty, direct revenue exposure to the region remains low. The report concludes that sector valuations are attractive and deal pipelines remain strong despite near-term global uncertainties.

Key Points: CLSA: No AI Deflation or War Hit to IT in Q4

  • No AI-driven deflation in contracts
  • Middle East crisis impact minimal so far
  • BFSI demand strong, tech verticals perform well
  • Deal pipelines remain robust despite delays
2 min read

No AI-led deflation or major war impact on IT sector in Q4 so far: CLSA

CLSA report finds no AI-led deflation or major Middle East crisis impact on Indian IT sector's Q4 performance so far. Deal pipelines strong.

"4Q26: No increase in AI-led deflation 1st AI (artificial intelligence) in control; 2nd AI (America-Iran) not yet - CLSA Report"

New Delhi, March 19

The IT sector has not witnessed any deflationary impact in the fourth quarter of FY26 so far, either from artificial intelligence developments or the ongoing US-Iran conflict, according to a report by CLSA.

The report stated this based on its discussions with major IT companies, including TCS, Infosys, HCL and Wipro, ahead of the silent period, said there is no evidence of increased deflation in renewal contracts due to the latest AI tools from Anthropic and OpenAI since their launch.

It stated "4Q26: No increase in AI-led deflation 1st AI (artificial intelligence) in control; 2nd AI (America-Iran) not yet"

The report highlighted that vertical-wise demand commentary remains intact across companies. The BFSI segment continues to see tailwinds for all four companies. The technology vertical is performing well for HCL and TCS, while retail, auto and healthcare segments remain soft.

It also noted that a few companies have flagged a slight delay in decision-making by clients. This is attributed to the launch of the latest AI tools, as clients are assessing their true potential, along with uncertainty arising from the ongoing Middle East crisis.

It stated, "A few companies flagged a slight delay in decision making by clients due to the launch of the latest AI tools to explore their true potential and due to the ensuing Middle East (ME) crises".

On the Middle East situation, CLSA stated that direct revenue exposure for all four companies (TCS, Infosys, HCL and Wipro) remains in low single digits. However, the broader macroeconomic impact will depend on the duration of the crisis and its effect on inflation, interest rates, GDP growth and overall IT services spending.

Despite these concerns, the report pointed out that deal pipelines remain strong. It added that valuations for India's IT sector, currently at their 10-year average, appear highly attractive.

According to CLSA, while near-term uncertainties persist due to global developments, there is no immediate sign of disruption in the sector's performance in the ongoing quarter.

- ANI

Share this article:

Reader Comments

P
Priya S
Good to hear the deal pipeline is strong! The BFSI segment doing well is a positive sign for the economy overall. Hope the valuations being attractive bring in more FII investment. 🇮🇳
R
Rohit P
"AI in control" for now, but for how long? Every client is exploring these tools. The delay in decision-making is the first sign of disruption. Our IT companies need a clear, public strategy on how they are integrating GenAI, not just saying it's under control.
S
Sarah B
The low direct exposure to the Middle East is a relief. But the indirect macro impact is the real worry. If global inflation and interest rates spike again, IT spending will be the first to get cut. Fingers crossed the crisis de-escalates soon.
V
Vikram M
Solid report. TCS and Infosys showing strength as always. The key takeaway is "no immediate sign of disruption." In this volatile global environment, stability is a win. Time to maybe look at some IT stocks for the long term.
K
Kavya N
Interesting that retail and auto segments are soft. Reflects the global consumer sentiment. Hope the tech vertical's performance for HCL & TCS can offset that. Proud of our IT sector's weathering so many storms! ✨

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50