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Q4FY25 - Tech Industry affected due to increased uncertainty
Q4FY25 - Tech Industry affected due to increased uncertainty

May 7, 2025

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The Indian tech industry is at a crossroads. With global macroeconomic pressures, uncertainty around tariffs, and shifting client priorities, how are the top players adapting—and what lies ahead?

As we break down the performance of the top 6 publicly listed Indian tech companiesTCS, HCLTech, Infosys, Wipro, Tech Mahindra, and LTIMindtree – accounting for ~32% of the Indian tech industry’s revenue—some crucial trends and questions emerge about the industry growth trends.

Q4FY25: A Quarter of Mixed Signals –

Summary

  • Revenues declined by 1.8% q-o-q, lowest since Q1FY21
  • Net margins expanded by 40 bps sequentially.
  • Reduced headcount growth by 0.01%, net reduction of 147 employees
  • Combined deal TCV increased to USD 24.2 billion, up 16.5% q-o-q, with focus on cost optimisation, vendor consolidation and tech modernisation.
  • Backed by strong deal pipeline, companies remain optimistic about growth momentum in the upcoming quarters.
  • Uncertainty around tariffs have led to reduced consumer spending, projects deferrals, tighter budgets, and stretched decision cycles across the industry, with direct impact on Retail and Manufacturing (Auto).
  • Key verticals performance was mixed: BFSI grew by 0.4%, Telecom by 2.1%, while Retail declined by 3.8% and Manufacturing remained under pressure, down 1.3% q-o-q.
  • Geographically, North America contracted by 2.7% q-o-q, while EMEA posted modest growth of 0.5% sequentially.
  • FY26 Outlook – Key analyst firms revise FY26 revenue growth predictions downwards – Dropped from an average of 6.7% in Q3FY25 to 3.3% in Q4FY25.

 

Deconstructing the Metrics

Revenue Decline (-1.8% q-o-q), sharpest decline since Q1FY25, but what led to this decline?

  • Growing uncertainty around tariffs.
  • Slower decision making and ramp down/ deferrals in projects.
  • Softness due to seasonality.
  • Cautious clients’ sentiments.

This could be a temporary pause due to external shocks, or early signs of a structural shift in client engagement models.

Net Margin Expansion (+40bps q-o-q)

Despite topline pressures, companies protected profitability through cost levers:

  • Projects like Maximus (Infosys) and Ascend (HCLTech) delivered efficiency gains.
  • AI-based automation is helping drive better margins even in cost-conscious deals.

Robust Deal Momentum: TCV at USD 24.2 Billion (+16.5% q-o-q)

A bright spot this quarter was deal momentum:

  • TCS: Second-highest TCV in six years.
  • Wipro: Best TCV since Q1FY24.
  • HCLTech: Second highest since Q2FY24.

What’s the common thread?

Most deals are now AI-enabled, and focus on cost optimization, vendor consolidation and tech modernisation.

Tariff Impact: Drag on Client Sentiment

The Indian tech landscape is now contending with:

  • Weakened consumer spending in major markets.
  • Longer decision cycles, especially for large transformation deals.
  • Budget tightening and growing emphasis on AI + cost synergies.
  • Direct impact on Retail and Manufacturing (Auto), with broader ripple effects on BFSI, Travel, and Healthcare.

It will be important for the Indian tech sector to build agility during uncertain times, otherwise we can witness flatten growth before it rebounds.

 

Flat Headcount (-0.01%, net reduction of 147 employees q-o-q) but 80K+ Freshers Hired in FY25

  • Select companies increasingly leveraging AI and GenAI to enhance efficiency and minimize the need for additional hiring – impacting net hiring.
    • Freshers hired 80k+ in FY25, in line with the annual target except for HCLTech that revised fresher hiring target last quarter.
    • Similar fresher hiring planned for FY26, except for TechM (did not mention the number)

Some of the companies have started seeing the impact of Ai on hiring, we need to watch out for hiring trends in the upcoming quarters to analyse this impact in detail.

 

Impact of AI

  • Widespread AI Integration: Companies have embedded AI and GenAI tools into operations, resulting in improved productivity and delivery efficiency.
  • Shift Toward Non-Linearity: AI adoption is driving a clear break between revenue growth and hiring needs—doing more with fewer people.
    • HCLTech reported 4.8% service revenue growth in FY25 while reducing headcount by 1.8%.
    • LTIMindtree cut its workforce by 2.9% q-o-q in Q4FY25, yet highlighted AI-led productivity gains to sustain growth.

 

  • Strong AI Deal Momentum: Companies continue to report healthy pipelines for AI-led projects, reflecting strong enterprise demand. AI is being deployed across majority of the deals as stated by companies
  • Investment in Agentic AI: There’s growing focus on Agentic AI, with select companies investing in it.

 

Vertical & Geographic Trends: Uneven Recovery

Vertical

Growth (q-o-q)

Insight

BFSI

+0.4%

Continued traction in BFSI focused deals in North America and Europe.

Telecom

+2.1%

Increased with improved demand for select companies and a recent acquisition (HCLTech – CTG: HPE assets).

Retail

-3.8%

Declined sequentially due to direct impact of tariffs

Manufacturing

-1.3%

Continues to face pressure, driven by ongoing weakness in the automotive and aerospace sector.

 

Geography

Growth (q-o-q)

Insight

North America

-2.7%

Directly impacted by the uncertainty around tariffs and projects being deferred.

EMEA

+0.5%

Expanded sequentially due to increased deal momentum, while auto and aerospace segment in the European region remains under pressure.

 

What to Expect in Q1FY26?

  1. AI-driven transformation to accelerate—expect broader internal deployments and client-facing initiatives.
  2. Selective hiring as companies balance cost with capability, especially around GenAI, cloud, and cybersecurity.
  3. Pricing pressure to increase as cost-optimization becomes a dominant theme in client negotiations.
  4. Delayed decision-making to continue in certain verticals until tariff clarity improves.
  5. Deal pipeline likely to remain strong—but conversion cycles may stay stretched.

 

Analysts take on FY26

 

Key analyst firms revise FY26 revenue growth predictions downwards – Dropped from an average of 6.7% in Q3FY25 to 3.3% in Q4FY25 due to:

  • Shifting client sentiment.
  • Reduced discretionary spending amid tariff-related uncertainty.
  • Q4FY25 revenue expectations (as of Dec 2024) was +0.3% growth q-o-q, while the actual Q4FY25 revenue performance was -1.3% decline, missing expectations in cc terms.

 

While Q4FY25 results reflect a cautious outlook, the key question remains: can the industry overcome macro headwinds through agility, resilience, and AI-driven transformation?

The performance in the upcoming quarters will offer deeper insight into how well Indian tech companies are adapting to and navigating these challenges.

 

Note: Data set considered across indicators varies depending on the data availability for the respective companies covered in the report, hence they are not comparable.

Source: Company financials, Analyst reports.


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Prajwal Pandey
Research Analyst

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