The tariff war has also heightened the risks of a recession in the US, which is a major market for India’s tech services sector. | Photo Credit: REUTERS
India’s IT services sector faces another challenging quarter, with no signs of a rebound in April-June 2025, as global macroeconomic uncertainties — particularly around tariffs — continue to delay discretionary tech spending.
Analysts warn that margin pressures will persist, especially as traditional managed services see thinning profits amid automation and stiff competition. While broader sentiment remains cautious amid potential recession risks and inflation threatening demand in key verticals such as retail, manufacturing and hi-tech, some tailwinds have emerged with US banks maintaining their tech investment plans after reporting strong earnings.
A rebound is unlikely till the April-June 2025 quarter, Ashutosh Sharma, VP and Research Director, Forrester, pointed out. The uncertainty of tariffs and the resulting volatility is making businesses cautious.
“We are seeing a lot of discretionary spending decisions delayed out. These deals, in the last few years, have become critical for IT service providers as the margins from their traditional managed services business have diluted thanks to productivity improvements due to automation and a highly competitive environment. Without these deals, we will see margin pressures persist for at least one more quarter. It is hard to predict beyond that for the moment,” he said.
Trump tariff
The tariff war has also heightened the risks of a recession in the US, which is a major market for India’s tech services sector. Nitin Bhatt, Technology Sector Leader, EY India, observed that a slowdown in US growth, along with an increase in inflation and unemployment over the next two quarters, could increase the risks of demand erosion and margin contraction would increase for US companies.
“This would have a cascading impact on the IT services players, although it would accelerate AI adoption for enterprise-wide productivity improvement. On the other hand, if the US can execute trade agreements with key countries, including China, over the next 90 days, and there is policy certainty as we advance, the chances of a rebound in discretionary spending would be higher,” Bhatt explained.
On the brighter side, major US banks — JP Morgan, Wells Fargo, Goldman Sachs, Citibank and Morgan Stanley — reported better-than-estimated results. Even when heightened caution around macroeconomic conditions was palpable, with all banks emphasising risks from recessionary pressures and evolving tariff policies, the technology spending outlook remained intact and as a strategic priority across the board.
A Motilal Oswal Financial Services report shared that verticals such as Retail & Consumer, Manufacturing, Hi-Tech & Software, could see delayed or deferred tech spending at least for Q1FY26 as clients absorb the uncertainty. Consensus estimates are at risk of being cut by 7-10 per cent over FY26-FY27.
Best bet: BFSI
However, the BFSI sector appears to be a good hiding place and may offer some shelter to India’s IT services. During the company’s Q4FY25 earnings conference call, TCS CEO K. Krithivasan reaffirmed the view that the BFSI sector is emerging as a green shoot amid prevailing uncertainties. “BFSI clients continue to focus on initiatives led to modernisation, cost optimisation, vendor consolidation and regulatory spend. Banking and financial institutions are proactively addressing tech obsolescence via legacy modernisation efforts. Examples are core platform upgrades and payment operations and improved lending experience.”
According to management commentary, technology spending for JP Morgan Chase is set to grow in 2025, driven by investments in new products, digital platforms, and modernization efforts. Expense guidance for 2025 remains at $95 billion, which reflects growth across compensation, marketing, and technology.
Wells Fargo called out its areas in technology investment that include digital enhancements to customer onboarding and experience across mobile and branch channels, automation of internal processes, and expansion of digital capabilities in wealth and commercial banking. The management reaffirmed its full-year 2025 expense outlook of $54.2 billion, which includes ongoing technology investments.
Other major US banks also maintained their tech budgets for Q1FY25, reinforcing a steady commitment to digital investments despite broader macroeconomic concerns. This sustained spending has been mirrored by Tier-I and Tier-II Indian IT players, with BFSI revenue delivering a healthy growth momentum, the MOFSL report pointed out.
Published on April 24, 2025