India's IT growth trails global clients amid shift in tech spending; experts urge caution

Core Insights - Revenue growth at India's five largest IT services companies has been slower than that of their global clients since 2023, indicating a shift in tech spending patterns and leading to a cautious outlook on India's $283 billion IT sector [1][2] Revenue Growth Trends - The five largest IT services companies account for 28% of the country's overall tech sector, and their slowdown in revenue growth may have a cascading effect on smaller rivals [2] - Revenue growth for the top five IT services companies has been around 1-2%, compared to 3-5%+ for the S&P 500 and Stoxx 600 since CY23, indicating a weakening correlation with major global indices [3][7] - The S&P 500's technology revenue grew over 15%, while IT services companies' revenue grew at about 1%, highlighting a significant divergence in growth rates [8] Factors Influencing Growth - The decoupling of growth between large companies and IT services is attributed to the rise of automation tools, a shift in IT spending towards product-based and AI infrastructure companies, and investments in in-house tech centers [5][10] - IT deals are now priced based on outcomes rather than headcount, reducing the need for excess personnel in projects due to automation [6] - The shift in spending patterns of large multinationals towards AI infrastructure and data modernization has impacted traditional IT outsourcing deals [14] Current Financial Performance - TCS, Infosys, and HCLTech reported revenues of $30.18 billion, $19.28 billion, and $13.84 billion, growing at 3.78%, 3.85%, and 4.3% respectively, while Wipro and Tech Mahindra saw declines in revenue [13] - The divergence in revenue growth is linked to changing spending patterns among large multinationals, with a focus on AI and automation rather than traditional IT services [12][14] Future Outlook - IT services spending is expected to remain steady with no significant changes anticipated in the near term, as companies maintain tight control over discretionary budgets amid economic uncertainties [15] - Analysts suggest that a faster rate-cutting cycle and improvements in the macroeconomic environment could serve as tailwinds for growth in the IT sector [16]