Indian IT Services Sector Surges as AI Adoption Accelerates, Morgan Stanley Notes

Morgan Stanley Sees Indian IT Services as Dark Horse in AI Boom

Indian information technology services companies could emerge as an unexpected beneficiary of the artificial intelligence boom, according to Morgan Stanley. The brokerage firm has taken a more constructive stance on the sector, which has been among the worst-performing segments of the Indian market over the past year due to concerns over AI-led disruption.

The sector, which has been one of the biggest laggards in Indian equities, has fallen 33% over the past 12 months and 6% year-to-date, according to Morgan Stanley's sector performance data. However, the brokerage expects the sector to deliver positive earnings growth of 12% in FY27 and 8% in FY28, suggesting that the market may be overstating the long-term risks from AI.

Morgan Stanley acknowledged that the AI debate has hurt valuations and that a slowdown in the US economy remains a risk, given the sector's dependence on overseas demand. Despite these challenges, the brokerage argued that artificial intelligence could create a new avenue for growth as enterprises increasingly seek partners to build, integrate, and scale AI applications.