India’s IT sector grapples with uneven recovery – and growth that brings fewer jobs

[BENGALURU] India’s IT firms saw some encouraging signs in the September quarter, with strong deal wins at some companies and progress in monetising artificial intelligence at others.

However, performance varied across the sector, while shifting workforce trends pointed to a deeper industry transition, highlighting how uneven the recovery remains.

What stood out was the continued disconnect between deal activity, technology demand and near-term revenue growth, said Biswajeet Mahapatra, principal analyst at Forrester. He was referring to the quarter results of top Indian IT firms, including Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, Tech Mahindra and LTM (formerly known as LTIMindtree).

The sector is moving away from a model where growth is closely linked to jobs creation, towards one where productivity, automation, AI-enabled delivery and higher-value transformation work play a much bigger role, he pointed out.

India’s IT sector rebounded about 13 per cent in the month till Oct 23, as quarterly earnings offered some relief to investors after months of concerns over slowing growth and AI-driven disruption.

Jefferies, a global investment bank, said in a research note that the Octoberrally in Indian IT stocks was driven largely by a re-rating of valuations, rather than upgrades to revenue or earnings forecasts.

However, the rebound has yet to make up for the sector’s earlier losses.

The Nifty IT index remained down around 15.5 per cent so far this year, compared with a decline of about 13 per cent in the Nifty 50, reflecting continued investor caution over the sector’s growth outlook. Bengaluru-based technology giant Infosys, LTIMindtree and Wipro have been among the worst-performing constituents.

AI as a revenue stream

AI is emerging as a meaningful source of revenue for some Indian IT companies, even as the industry grapples with pricing pressure in traditional services.

TCS, India’s largest IT services company by revenue and market capitalisation, and Infosys said AI accounted for more than 10 per cent of total revenue in the September quarter.

Infosys also reported US$5.2 billion in large-deal wins while HCLTech’s advanced AI revenue rose 78 per cent year on year in constant currency. L&T Technology Services, which specialises in engineering and research services, said AI-led deals accounted for over half of its large-deal contract value.

The broader performance of IT services companies, however, remained mixed. Wipro, for instance, reported IT services revenue growth of just 0.6 per cent year on year in constant currency, while its large-deal bookings fell 58.6 per cent sequentially, pointing to softer momentum in its overall business.

The macroeconomic environment has yet to improve, leaving IT service providers balancing the pressure of AI-driven deflation in traditional services against opportunities to generate new revenue from AI, said Pareekh Jain, CEO of IT research firm EIIRTrend.

Banks still spend, but priorities are shifting

Banking, financial services and insurance (BFSI) remained a relative bright spot for Indian IT services companies in the September quarter.

HCLTech led among the largest firms with a 7.1 per cent increase, followed by TCS at 3.9 per cent and Wipro at a more modest 1.3 per cent. Meanwhile, tech consulting firm LTM reported an 8.7 per cent surge in its financial segment.

Speaking at the earnings conference call, Wipro CEO and managing director Srini Pallia said AI and data investments were growing across BFSI, with banks prioritising legacy modernisation, agentic AI and cloud migration.

Spending priorities are shifting towards platforms, automation, AI and modernisation. IT services providers will need to capture more of this spending through transformation, integration, engineering and managed services, rather than relying primarily on labour-intensive application work, said Biswajeet of Forrester. He added that he expects the BFSI sector to remain an important source of demand for IT services firms.

Pareekh of EIIRTrend also sees banks as a key source of business for IT services providers, noting that major US banks are increasing their IT budgets. However, higher interest rates pose a risk to future spending, with any slowdown more likely to affect next year’s budgets than those for the current year, he said.

Structural shifts in hiring

Across India’s top technology companies, exits are outpacing new hires in the IT and engineering functions.

India’s six largest IT services firms – TCS, Infosys, HCLTech, Wipro, Tech Mahindra and LTM – recorded a combined 92,000 employee exits over the past year.

Although attrition remained within the industry’s normal annual range, companies have not been very keen on hiring replacements. Exits outpaced hiring in IT and engineering functions in five of the past six months, reported The Economic Times, citing staffing firm Xpheno.

The decline reflects not just weaker demand, but also a structural shift in how IT services providers build their workforces. Automation and AI are reducing the labour required for repetitive development, testing, maintenance and support work, said Biswajeet of Forrester.

“This does not mean hiring will stop,” he added. Instead,hiring will become more selective, with greater emphasis on AI, data, cloud, cybersecurity, engineering and specialised domain skills.

Visa constraints are adding another layer of pressure.

Indian IT services firms have traditionally sent employees from India to client locations in the US, often using H-1B visas for specialised occupations. Earlier this month, the US suspended major technology firms, including Infosys, TCS and Wipro, from a programme used to sponsor foreign workers for employment-based green cards, Reuters reported.

Providers can no longer rely as easily on hiring and training employees in India before sending them to overseas markets, said Pareekh. In the near term, companies may rely more on subcontractors, while hiring locally in the US could become more important over the medium term, he added.

This pullback may not be permanent. Pareekh expects hiring to pick up as demand improves, noting that recruitment had already strengthened in the September quarter as providers prepared for a potential recovery. Whether that momentum continues will depend on a broader improvement in growth, he said.

For India’s IT sector, the September quarter offered signs of resilience but few grounds to declare a sustained recovery.