Mumbai (Maharashtra)

The information technology (IT) sector is expected to experience moderated growth during the transition phase of a new technology cycle. According to a report by Morgan Stanley, spending on IT services may increase at a slower rate compared to the overall growth of the United States economy.

The report stated that the IT services spending multiplier to US nominal GDP growth could remain low during the transition period of the new technology cycle. This indicates that even if the US economy grows, the pace at which IT services spending rises may not match earlier technology cycles in the near term.

It stated "We think IT Services spend multiplier to US nominal GDP growth rate could remain low in the transition phase of the new technology cycle".

The analysis highlights that India's IT services exports growth has historically been closely linked with the US economy. However, during periods of technological transition and macroeconomic uncertainty, the multiplier effect between US nominal GDP growth and Indian IT exports tends to weaken.

Analysis of previous technology cycles shows that there were phases where growth slowed before accelerating again. During the early phase of the cloud computing cycle, revenue growth of Indian IT services companies moderated before witnessing a stronger acceleration in later years.

The report pointed out that there was a prolonged slowdown period for India's IT exports in the past when the multiplier effect dropped to around 0.9x during 2013 to 2017. However, growth picked up again during the digital and cloud cycle around 2017 to 2020, when the multiplier improved to around 2.3x and later after Covid to about 2.6x.

More recently, since mid-2025, during a period of macro slowdown, the multiplier was around 2.2x. Going forward, Morgan Stanley expects that with the ongoing transition to a new technology cycle, the multiplier could remain relatively low again, similar to earlier transition phases such as the one seen in 2016-17.

The report also noted that revenue growth of India's top IT services companies has been lagging behind the broader growth in India's IT and IT-enabled services exports.

This suggests that growth momentum could currently be stronger in Global Capability Centres (GCCs) compared with third-party IT services companies.

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According to the analysis, stronger growth in GCC exports compared with third-party services companies may be one of the factors influencing the overall growth pattern in the sector.

Overall, the report indicates that the Indian IT sector may go through a transition phase in the near term, where growth may moderate before potentially accelerating again as the new technology cycle develops.