EP-88 | The 'Honeymoon Period' is Over for the IT Sector in India | Quick Take | Smita Prakash

Summary

India's IT giants, including Infosys, TCS, and Wipro, are facing a slowdown marked by weak financial results, job cuts, and halted salary hikes. Factors like global economic uncertainty, tariff wars, and the rise of AI and automation have compounded the challenges. Experts argue the industry’s growth has been inflated by inefficiencies and outdated business models. To survive, Indian IT companies must innovate, rethink their purpose, and invest in new technologies, as the traditional outsourcing model becomes increasingly obsolete.

Takeaways

• 😀 India's tech giants are experiencing significant slowdowns with crashing stocks, job cuts, and halted salary hikes.
• 😀 The slowdown is attributed to a mix of global economic uncertainty, US recession fears, and technological disruptions like AI.
• 😀 Major Indian IT companies such as Infosys, TCS, and Wipro have posted some of their weakest results in years.
• 😀 Salary hikes are on hold, new hiring is frozen, and forecasts for the future are tepid at best for the IT sector.
• 😀 Over $5.1 billion worth of IT contracts in the US have been shelved or canceled, contributing to a slowdown in outsourcing.
• 😀 Trump's tariff hike on Chinese and foreign tech goods has made clients more hesitant to outsource large projects to India.
• 😀 Zoho's Sridhar Vembu argues that India's IT industry has been complacent and reliant on a bubble of easy growth for years.
• 😀 The future of India's IT industry may involve a difficult phase with reduced growth, requiring tough decisions and structural changes.
• 😀 Global tech companies are undergoing their own corrections with layoffs, while AI and automation are replacing human labor.
• 😀 The traditional Indian IT service model may no longer be relevant, as clients demand smarter, leaner, automated solutions.
• 😀 To adapt, Indian IT companies need to redefine their purpose, invest in innovation, R&D, and shift beyond just code towards higher-value models.

Q & A

What are the main reasons behind the crash of India's tech giants?

The crash of India's tech giants is attributed to several factors, including global economic uncertainty, fears of a potential US recession, technological disruptions, inefficiencies within Indian IT companies, and external factors like Trump's tariffs on foreign tech goods.

Which Indian IT companies are facing the slowdown, and what are their results?

India's major IT companies, including Infosys, TCS, and Wipro, are facing the slowdown. TCS reported its slowest revenue growth in four years, Infosys experienced a 12% decline in profits, and Wipro posted its weakest ever revenue, excluding the pandemic-related slump.

How have salary hikes and hiring been impacted in Indian IT companies?

Salary hikes are on hold, with new hiring nearly frozen, especially for entry-level positions. Companies like TCS have delayed salary revisions, and Infosys predicts only flat to 3% growth next year. Even freshers are facing delays in onboarding.

How are external factors, such as US tariffs, affecting India's IT sector?

The US, which is India's largest tech market, has seen over $5.1 billion worth of IT contracts shelved or cancelled. Trump's tariff hikes on Chinese and foreign tech goods have made clients more hesitant to outsource large transformation projects to India.

What is the criticism from Zoho's Sraru regarding India's IT industry?

Sraru criticizes the Indian IT industry for having grown on a bubble, focusing too much on itself and offering services that add limited value. He believes the industry has become too comfortable and failed to address inefficiency issues.

What does Sraru predict for the future of India's IT industry?

Sraru predicts that the rapid growth and easy money phase for India's IT industry is over. He believes the future will be challenging, and companies will need to make tough decisions to survive. The IT industry must adapt to a new phase of slow growth and increased competition.

How is the global tech market influencing layoffs and job losses in 2025?

In 2025, over 23,000 tech jobs have been lost globally within the first few months. This is partly due to recession fears, with major companies like Google and Microsoft undergoing layoffs. AI and automation are also replacing human labor, leading to further job cuts.

How are AI and automation impacting Indian IT firms?

AI and automation are putting enormous pressure on Indian IT firms, which have traditionally built their fortunes on large teams managing legacy systems. Clients are now seeking smarter, leaner, automated solutions, which could lead to reduced demand for the conventional services India has been providing.

What are the main concerns about the future relevance of Indian IT?

There are growing concerns that Indian IT is losing relevance, with clients delaying or cancelling transformation projects due to uncertainty. Additionally, startups are eating into traditional service models, and India may no longer be the go-to destination for outsourced tech services.

What does Sraru suggest as a solution for the Indian IT industry's future?

Sraru calls for a complete rethinking of the Indian IT industry's purpose. Instead of just focusing on cost-cutting or upskilling, he emphasizes the need to invest in product innovation, R&D, and original intellectual property (IP). The traditional outsourcing model won't work in the coming decades, and the industry must innovate and redefine its approach.