Cautious Client Spending and AI Impact Slow Growth in Indian IT Services Sector

The software has allowed many public health facilities in India to quickly receive necessary equipment manage their supply chain well and follow transparent practices.

Uncertainty around the world is making clients cautious in their spending on Indian IT services, says InCred Equities report. Despite the abundance of contracts in the pipeline, clients persist in delaying the signing of long-term IT services deals. The report points out that complex requests for proposals and consultants’ involvement are causing delays when reaching decisions.

Troubles between India and Pakistan are one of the reasons why Centres of Excellence have not been welcoming as many clients, slowing down decisions on international IT services projects. Companies are focusing on making cost reductions to handle higher inflation.

In the IT sector, AI is helping companies be more productive, leading clients to push for better and more cost-efficient improvements in current projects to help finance smaller AI-focused efforts. The market is now seeing mergers, heightened competition, and pressure on profit margins. It is noted by InCred Equities that while margin expansion in FY26 could be quick, it might also present some difficulties.

Changes in the economy might help mid-sized IT firms when it comes to adopting new technologies. In the CEO’s view, AI allows tier-II companies to gain more market share when competing with larger companies.

The concerns voiced by Nandan Nilekani at Infosys and N. Chandrasekaran at Tata Consultancy Services cover disruptions facing the world. Geopolitics, disturbances in the supply chain and unclear policy decisions have taken a big toll on the profitability of companies in the IT services segment.

InCred Equities predicts there could be an increase in India’s budget in the second half of FY26, but points out that deflation caused by AI could cancel out these gains in the future. While the sectors of banking, healthcare and energy are still busy, the demand for IT services is not rushing which indicates that the market is still cautious.