According to Goldman Sachs, revenue growth in India's IT sector will accelerate due to pent-up demand for IT services and the impact of adopting generative artificial intelligence (AI) technology. The Wall Street Bank forecasts 9% -10% revenue growth from 2025, saying the market may be underestimating the sector's potential, even though near-term revenue is likely to remain "muted." "Indian IT services companies have more than doubled their market share in the last 10 years," Goldman Sachs analysts led by Manish Adukia wrote in a note dated Tuesday. "We expect Indian IT firms to continue gaining share, given the structural advantages of a large, skilled, and low-cost workforce, combined with a diverse geographical footprint."

They also note that historical data suggests periods of economic slowdown have been followed by elevated growth for Indian IT services companies, driven by increased enterprise outsourcing and pent-up demand. India's Nifty IT index is up about 8 per cent this year, looking to recoup some of last year's 26 per cent slump. The broader benchmark Nifty 50 index is up 7.2 per cent so far in 2023. Operating profit growth for the sector is expected to grow at a 12 per cent -15 per cent range over fiscal 2025-2026, faster than revenue growth, as the brokerage sees an expansion in margins for all the companies in its coverage.

It started coverage on six Indian IT stocks, with "buy" ratings on top companies like Infosys and TCS, as well as the smaller LTIMindtree, citing strong revenue growth expectations. It is less optimistic about Wipro and Tech Mahindra, recommending a "sell" based on a lower margin profile. Goldman Sachs also assigned a "neutral" rating to HCL Tech, citing risks to near-term revenue growth. It did, however, see the company as "well-placed" in the medium term.