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