New Delhi, Apr 7 (PTI) Rising global uncertainty and fear of slowdown in its biggest market, the US, is seen taking a toll on the Indian IT industry’s showing, with several analysts now warning that a possibly weak exit for the just-ended FY25 may be followed by an “unexciting guidance” or outlook pullbacks for FY26 as well as pain up ahead in verticals such as retail and manufacturing.
Discretionary spends, they say, would most likely come under cloud, again, dashing any hopes of its near-term recovery. Market watchers further warn that the next 3-6 months could see a build up of negative news — including earnings cuts and potential pullbacks in FY26 guidance.
Retail and manufacturing verticals are being called out by industry pundits as particularly vulnerable, amid global aftershocks, and market carnage.
That said, some believe that “survival spend” may come into focus, as also GenAI. While near-term prospects remain muted, outlook could turn favourable in the second half of FY26, driven by macro stabilisation and demand growth from AI, some experts believe.
The big earnings week for export-led tech companies commences this week in the shadow of US’ far-reaching global tariffs, and its economic aftershocks worldwide.
IT heavyweight Tata Consultancy Services (TCS) is scheduled to make its earnings announcement on Apri 10. Infosys’ Q4 and full-year FY25 report card will be out on April 17, Wipro (April 15), HCLTech (April 22) and Tech Mahindra (April 24).
“The fallout from the Liberation Day tariffs has wreaked havoc on Indian IT service stocks, pushing the sector into the eye of the storm. While the full impact will take time to unfold, discretionary spend is likely to be put on hold again,” Motilal Oswal said in a note.
This shock bears resemblance to both Covid and the GFC (global financial crisis) — periods that ultimately triggered powerful tech adoption cycles, according to it.
“Economic shocks often mark the beginning of new tech cycles — and GenAI’s moment may have finally arrived. That said, near-term volatility remains high,” it said.
HDFC Securities said the IT sector is anticipated to report a weak exit for FY25 and provide unexciting guidance for FY26 amid rising global uncertainty.
“The macroeconomic slowdown has become a baseline scenario, with lower discretionary spending and elongated deal cycles impacting the pace of recovery,” it said in a report.
The deal activity will be centred more around cost optimisation/takeout initiatives. GenAI is taking centrestage but also driving pricing changes as enterprises and hyperscalers integrate AI-efficiency into their pricing models.
“For Q4FY25E, most of the large IT companies will register revenue decline ranging from -1.8 per cent to 0.1 per cent QoQ (-1.6 per cent to 6 per cent in YoY terms) due to a weak demand environment, lower billing days, and lower discretionary spends. Q4 revenue growth expectations for mid-tier ranges from 3.7 per cent QoQ to -4.7 per cent QoQ,” it said.
“There was a hope of rise in discretionary spends but the current macro uncertainty will further push the recovery cycle,” it said.
Cost optimisation deals are expected to continue, however.
The increased activity in global capability centre/captives can impact the near-term growth prospects for the sector, it added.
As such, India’s IT services sector has been facing growth headwinds over the past quarters with clients in the US and the EU closely scrutinising tech spends amid economic pressures, while increased AI fascination had led to fears of reduced job creation globally.
Adding to the woes now, prospects of global economic wars, given the US’ fresh tariff offensive on trading partners and major allies, has deepened worry lines about slowdown in the United States, and uncertainties ahead. Retaliatory moves are being mulled, and announced by markets like China.
While the USD 250-billion Indian IT pack — that derives a sizeable chunk of its revenue from servicing US clients — is on a wait-and-watch mode to assess the full impact as it unfolds in coming quarters (as well as the trade negotiations in offing that could sway equations) some are indeed hopeful that any near-term slowdown in growth in America would, in fact, nudge more companies to chase efficiencies through outsourcing deals and tech adoption in the long-term.
Takeaways may be different for different verticals.
As per Motilal Oswal, financial services could defer non-essential programs, with emphasis on risk, compliance, and operational efficiency. Manufacturing may delay most tech investments amid severe margin pressure, but then targeted automation and supply chain fixes could take priority.
Healthcare is expected to maintain essential initiatives like telehealth and continuity, while broader transformation projects may be paused. Insurance may focus on analytics and claims automation to offset rising costs and protect margins.
Retail and consumer are likely to sharply cut discretionary tech spend, and the attention may shift to tools that safeguard pricing, inventory, and logistics efficiency. Hi-tech and software could pause expansion plans and reallocate resources toward productivity and client retention, as per Motilal Oswal’s analysis.
According to Q4 snapshot by Antique Stock Broking, a weak exit rate will likely weigh on FY26 growth outlook.
While near-term prospects remain muted, the outlook is more favourable in 2HFY26E driven by macro stabilisation and demand growth from AI and platform transformation initiatives, it said.
“The macroeconomic environment has become increasingly uncertain, particularly for Indian IT companies reliant on the US, their largest revenue market. Concerns over global tariff risks, potential policy instability, and delayed US interest rate cuts have made enterprises more cautious, leading to a pause in discretionary IT spending and delays in large transformation projects,” Antique said, drawing attention to reduced revenue growth assumptions across sectors on deterioration of outlook for retail and manufacturing verticals.
