Indian IT’s Real Reckoning Isn’t Tariffs Or AI

Indian IT majors—TCS, Infosys, and Wipro—have long served as a proxy for India’s tech-driven rise, basking in three decades of steady margins and global dominance. But their latest earnings offer more than a quarterly miss—they signal the end of a playbook that has gone unchallenged for too long.

TCS clocked ₹644.79 billion in revenue for the January-March 2025 quarter, up a meagre 5.3% from a year ago, the weakest in four years. Net profit shrank 1.7% to ₹122.24 billion. Infosys grew revenue by nearly 8% to ₹409.25 billion, but profit plunged almost 12%. Wipro posted the flattest revenue trajectory of the three—up just 1.3%—but managed a 26% jump in net profit, largely from cost cuts, not business momentum.

The bigger problem lies in the future. Infosys forecast a bleak 0–3% revenue growth for 2025–26—its worst outlook since the global financial crisis. Wipro warned of a possible revenue contraction in the April-June quarter. TCS, typically coy on guidance, offered only vague reassurances about improving BFSI demand.

If this were just about a tough macro backdrop, the market might have shrugged it off. But a deeper rot is in play.

The United States, which fuels 60% of the sector’s revenue, is showing early signs of economic strain. Consumer sentiment hit a 15-month low in February. Manufacturing output contracted in March. And while President Donald Trump’s latest tariff salvo is paused for now, the threat of further protectionist moves has already injected fresh caution into US corporate IT budgets. The BFSI sector is stirring slightly, but European clients—particularly in manufacturing and automotive—remain in retreat.

Attrition is another persistent drag: TCS at 13.3%, Infosys at 14.1%, Wipro at 15%. Despite headlines about a cooling job market, talent churn remains high and costly, delaying delivery cycles and pressuring margins.

To their credit, India’s IT giants are not in denial. Infosys is leaning hard into AI, with new client wins in generative use cases. TCS is doubling down on cloud partnerships with AWS and Microsoft Azure. Wipro is repositioning its offerings with a sustainability tint, targeting ESG-sensitive clients.

Yet even these shifts feel reactive, not radical. The bigger threat may not be AI or tariffs—but what they reveal about the fragility of Indian IT’s business model.

Few have put it as bluntly as Zoho founder Sridhar Vembu. Reacting to the sector’s underwhelming performance, he wrote on X: “The broader software industry has been quite inefficient, both in products and services... These inefficiencies have accumulated over decades of a prolonged asset bubble. Sadly, we adapted to a lot of those inefficiencies in India. Our jobs came to depend on them.”

In Vembu’s telling, this is not a passing storm but a long-overdue reckoning. “The last 30 years,” he said, “are not a good guide post to the next 30 years. We are truly at an inflection point. We have to challenge our assumptions and do fresh thinking.”

He’s right. India’s IT sector didn’t grow by building breakthrough products. It grew by scaling low-cost services to meet global inefficiencies—back-office sprawl, bloated systems integration, legacy code maintenance. Now, AI promises to automate much of this away. At the same time, fiscal pressures are forcing CIOs in the West to ask harder questions about value for money.

The sector’s biggest risk isn’t disruption. It’s inertia.

Investors, policymakers, and IT leadership would do well to treat this moment not as a post-COVID hangover, nor as a passing trade hiccup—but as a structural turning point. Reputations may still be intact. Margins are still defensible. But the world has moved on. Indian IT must now prove it can, too.