The growth machine in Indian IT is sputtering, at least for now. Bhavin Shah, CEO of Sameeksha Capital, pegs the expected annualised returns for largecap IT stocks at a modest 8-10%, a far cry from the double-digit growth cycles investors are accustomed to. He points to the sector trading at free cash flow yields of 5-6%, a valuation signal that suggests the market is pricing in a period of constrained revenue expansion. Shah cites Tata Consultancy Services’ recent results as the benchmark for this low-single-digit growth environment, noting that AI-driven productivity gains are effectively capping top-line growth for the majors.
But the long-term picture isn't bleak. Mohandas Pai, former Infosys CFO and Aarin Capital Chairman, argues that the industry is sitting on a coiled spring. He predicts a clear growth inflection point within the next two to three years. The catalyst? Enterprise AI adoption moving beyond pilot projects into core business systems. Pai highlights that while global spending on AI infrastructure and LLMs is surging, enterprises remain cautious about security and regulatory hurdles. This gap is precisely where IT services firms fit in—as the critical intermediaries who integrate these technologies into existing legacy architectures.
The data backs Pai’s optimism on the AI front. TCS has already reported an AI services revenue run rate of $3 billion, a concrete figure that signals the shift from hype to revenue is underway. Pai expects other major players to report similar developments soon. This model works because large enterprises rarely build everything in-house; they need partners to navigate the complex integration of new tech stacks without disrupting operations.
A separate headwind looms from Washington. The US Department of Labour’s reported suspension of Permanent Labour Certification (PERM) processing for certain tech firms has raised alarms regarding green card applications. Pai dismisses the immediate threat, pointing to a structural shift in staffing. Indian IT firms now employ 60-70% local staff in the US, up from 25-30% a decade ago. This localisation, combined with long wait times for green cards, insulates the sector from short-term immigration policy shocks.
Investors should watch for two signals over the next 12-18 months: the speed of enterprise AI deployment and the ability of IT firms to train their workforce in specialised AI models. If revenue growth re-accelerates from the current low-single-digit band, the 5-6% FCF yield could look like a bargain in hindsight. Until then, the sector remains a cash-generation play rather than a high-growth momentum stock.