HSBC Warns of IT Revenue Deflation
According to HSBC, India’s domestic IT industry — employing nearly 20 million people directly and indirectly — is expected to face revenue deflation of 8–10 percent over the next three to four years. The slowdown stems from global clients increasingly prioritizing AI-based automation, which reduces dependence on traditional IT service contracts.
The brokerage highlighted that as companies renew long-term technology deals, the adoption of AI-driven solutions will likely reduce billing rates for conventional IT services. This could create short-term financial pressure on Indian firms while they adapt to AI-enabled service models.
Services Sector at Risk Amid AI Disruption
HSBC noted that India’s services sector contributes around 55% of the national GDP, making it more vulnerable to AI-led automation compared to manufacturing-heavy economies. The bank warned that AI could displace low-end knowledge jobs, particularly in finance, accounting, supply chain management, and customer support.
“Enterprises are 12–18 months away from large-scale AI adoption in mid- and back-office operations,” the report said, predicting a gradual decline in hiring for routine roles. However, HSBC also observed that most companies are currently using AI to enhance productivity rather than immediately cut jobs.
Impact on Foreign Investor Sentiment
India has witnessed sustained foreign institutional investor (FII) outflows in recent months. HSBC attributed this partly to investors shifting focus toward AI-dominant markets such as South Korea and Taiwan, where technology firms are leading the global AI infrastructure race.
“Our data shows a notable rotation of funds from Indian equities to AI-focused markets amid elevated valuations and muted earnings growth,” HSBC said. During the September quarter, FIIs reportedly invested a record $15 billion in Taiwanese equities, while cutting back exposure to Indian shares.
Hope Beyond the Hype
Despite short-term challenges, HSBC acknowledged potential long-term opportunities for India. As global enterprises redesign their software infrastructure to support multi-agent AI systems, Indian IT firms could benefit from renewed demand for enterprise architecture, cloud migration, and AI integration services.
The report compared the situation to the SaaS transition a decade ago, which initially appeared negative for IT outsourcing but ultimately created new service-driven revenue streams.
India’s Path to AI Competitiveness
Experts argue that India’s large tech talent base and government-led AI initiatives, such as the IndiaAI Mission, can help the nation close the gap. However, HSBC cautioned that timely investment, innovation, and policy support are crucial to avoid being sidelined in the global AI economy.
With countries like the US, South Korea, and China already investing billions in AI infrastructure, India faces a critical juncture — balancing its traditional IT strengths with the emerging demands of the AI-driven digital economy.
