Gaurav Parab, Principal Research Analyst, NelsonHall, notes FY26 will remain soft with growth being the main challenge. “Although there were signs of revival in FY25—particularly with BFSI recovering, leading to optimism across adjacent sectors like retail and manufacturing—the unexpected events have disrupted this momentum, as there is lack of clarity surrounding it.”
He also notes that revenue deflation due to generative artificial intelligence (AI) will also be a deterrent. This essentially means that the clients of IT companies will demand for operational gains from usage of Generative AI to be shared with them. In this case even as Gen AI will reduce costs, it won’t result in higher income.
These new challenges come at a time when the IT industry at large is seeing disruption in the new age of Artificial Intelligence. One of the services industry honchos C Vijaykumar, CEO of HCL Technologies, recently voiced that over the past 30 years, the industry has grown in a linear fashion—both in revenue and workforce size—but this traditional model is now poised for disruption.
Now, FY26 will face challenges from project deferrals, cancellations, and slower decision-making, especially for transformation programs without immediate return on investment. Clients are expected to prioritise critical initiatives, while non-essential projects and some deal renewals may be postponed, Pokharna said.
Pareekh Jain, chief executive officer of Pareekh Consulting, explains that along with the effect of ramp-downs, margins also are likely to be impacted, with operational levers reducing. He notes that the sectors of business such as retail, and manufacturing revenue verticals will be the most hit due to the current geopolitical movements with tariff impositions.
As a new set of challenges arises for the industry, HFS Research notes that for the IT companies, where COVID forced product and business model innovation, a global trade war will be about circling the wagons, constraining costs, and slowing product innovation as consumers and other businesses will no longer be looking to buy new products.
Adding to these challenges is the rapid rise of Global Capability Centres (GCC) in India. These centres are the in-house development centres set up by multinational companies that work on tech functions and innovations. This poses a challenge to IT services players, as companies have an option to insource the operations to their own GCCs instead of outsourcing to IT service providers.
For instance, in the recent past, reportedly Citigroup, one of the major clients for Indian IT services companies, decided to reduce its reliance on IT contractors, and cut external contracts to 20% from the current 50%.
Piyush Pandey, lead analyst at Centrum India, said, “GCCs pose some risk to IT companies, because there is always a chance that some of the work would have been outsourced to IT companies. Part of it is driven by the desire of clients to maintain more control over the IT projects, to optimise costs.”
Growth moderation in near term is expected, and greater impact of this will be seen on the small-mid size companies as companies might rely only on some large players and insource the remaining operations to their own GCCs, he added.
The number of GCCs in India has grown from approximately 1,430 in fiscal 2019 to over 1,700 in fiscal 2024. As of March 31, 2024, GCCs in India employed nearly 1.9 million professionals, according to Economic Survey 2025.
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