India’s IT revenue trails global clients amid AI spending shift
NEW DELHI, INDIA — India’s IT sector, long a global outsourcing powerhouse, is facing a slowdown as its largest firms struggle to keep pace with the revenue growth of international clients, according to a Mint report.
Revenue at the country’s top five IT services companies, including Tata Consultancy Services, Infosys, HCL Technologies, Wipro, and Tech Mahindra, has lagged behind that of major global firms since 2023, highlighting a structural shift in technology spending patterns.
Automation and AI hit India outsourcing demand
Analysts point to automation and AI adoption as key drivers behind the slowdown.
“The growth (for the IT services companies) did not show up in the tech services market, as it was stolen or shifted by two significant factors, including insourcing, where companies started doing the work themselves,” said Peter Bendor-Samuel, founder of Everest Group.
“The second factor is AI, where firms are using AI themselves and not using third parties. Another factor is in the compression of revenues as AI creates more productivity, and several of the tech services firms are already delivering work at 30%+ productivity,” he added.
Revenue growth for India’s top IT firms has slowed to 1-5%, while the S&P 500 and Stoxx Europe 600 companies have posted 3-15% growth over the same period.
“Our lack of enthusiasm on IT Services continues to be premised on an unconvincing revenue growth trajectory ahead. Prior to CY23, IT Services companies exhibited strong correlation with the S&P 500 and Stoxx Euro 100’s revenue (a cogent proxy of IT companies’ client base),” said ICICI Securities analysts Ruchi Mukhija, Aditi Patil and Seema Nayak.
The shift reflects a broader trend: multinational clients are redirecting budgets to AI infrastructure, in-house tech centers, and product-based solutions, reducing dependence on traditional outsourcing contracts.
“The initial deflation due to AI is hurting net revenue growth (for homegrown IT services companies) in an uncertain macroeconomic environment, making clients focused on cost reductions and delaying discretionary spends,” Nomura analysts explained.
Revenue gap with U.S. and Europe signals cautious outlook
The slowdown has tangible implications for India’s $283 billion IT sector, which relies heavily on the top five firms for market momentum. While companies like TCS expect overseas revenue to remain resilient, the sector faces near-term headwinds.
“IT services spend is steady with no significant change expected in the near term. Lingering uncertainties in the broader economic environment continue to remain a key challenge. Companies are keeping tight control over their discretionary budgets,” said TCS CEO K Krithivasan.
From an outsourcing industry perspective, the decoupling highlights a critical pivot point: Indian IT firms must evolve from labor-heavy service models to tech-driven solutions and AI-enabled offerings.
Firms that successfully integrate automation and AI into their own service delivery may not only weather the slowdown but also position themselves to capture the next wave of global IT spending, a trend likely to define the sector over the coming decade.
