Indian IT firms are experiencing a slowdown in deal momentum during the first quarter of the fiscal year, primarily due to tariff-related uncertainties in the United States. This hesitation among clients to finalize deals has led to delays and reviews of an estimated 10-15% of contracts.
Several factors contribute to this cautious approach. The ongoing pause on reciprocal tariffs announced by the U.S. administration has created uncertainty in enterprise decision-making cycles, especially in key markets like the U.S. and Europe. Clients are adopting a wait-and-see approach, delaying closure of deals until they gain clarity on the tariff situation.
According to data, deal-win announcements in April fell to 15, down from 19 the previous month. While signings had shown promise earlier in the year, peaking at 26 in September, the recent trend indicates a dampening of momentum. Despite this slowdown, the industry maintains a healthy deal pipeline, estimated to be in the $70–$80 billion range. However, a significant portion of these deals are at risk of delay or review due to tariff uncertainties and a decrease in discretionary spending.
The banking, financial services, and insurance (BFSI) sector remains relatively strong, while Europe is showing early signs of weakness. Consumer confidence in Europe and the UK has also declined, further contributing to the slowdown. The three-month rolling sum of deal signings, a key indicator of total contract value, has also decreased, signaling a potential impact on future revenue.
Concerns about the impact of U.S. tariffs are widespread among India's leading IT service providers, including Infosys, Tata Consultancy Services (TCS), Wipro, and HCL Tech. These companies have expressed concerns about potential reductions in client spending on technology due to the new tariff regime. Wipro CEO Srinivas Pallia cited an example of a client pausing a large SAP program due to tariff concerns, highlighting the immediate impact on revenue growth. He also noted that clients are holding back on further investments as they try to understand the implications of the tariffs.
Infosys CEO Salil Parekh has observed an impact on the retail sector, with economic uncertainty and lower consumer spending in core markets leading to tighter client budgets. TCS CEO K Krithivasan mentioned heightened caution and delays in discretionary projects within the company's consumer group, attributing it to a significant drop in consumer sentiment and changes in global trade and tariffs. The airline, travel, and hospitality industries have also experienced a greater impact.
HCL CEO C Vijayakumar stated that while they have not seen any specific impact so far, he anticipates that consumer and manufacturing companies will be the first to be affected, with eventual impact across all industries. He believes tariffs will drive customers to reduce costs, potentially benefiting HCL through increased demand for efficiency-driving technologies like generative AI.
The U.S. tariffs, though not directly targeting IT services, are expected to create inflationary pressures and tighter client budgets, which could affect the revenue growth of Indian IT firms. Experts project a potentially softer-than-projected first quarter for Indian IT companies. Sectors like manufacturing, electronics, and parts of retail/CPG may face cost pressures and uncertainty, leading to cuts in non-essential and discretionary IT spending.
