India’s $250 billion IT industry is undergoing a profound transformation, driven by the twin forces of technological disruption and the rapid ascent of artificial intelligence. Once synonymous with cost efficiency and large-scale outsourcing, the industry is now pivoting towards agility, innovation, and digital reinvention. Like their global peers, Indian IT firms are recalibrating strategies to align with shifting demand patterns, financial volatility, and the growing influence of AI on operational efficiency.
Yet, despite the optimism, economic headwinds and the capital-intensive nature of AI investments are forcing companies to walk a tightrope between innovation and financial discipline.
READ | World Health Assembly 2025 to tackle pandemic treaty, budget cuts, equity challenges
Lagging ambitions in AI race
India’s aspirations in the AI race remain a step behind the developed world. The tangible impact of AI on revenues has so far been limited, with firms still discussing pipelines and pilot projects rather than large-scale implementations. Despite high-profile announcements, the commercial payoff remains elusive.
Take HCLTech, for instance. During the Q4FY25 earnings call, CEO C Vijayakumar urged stakeholders not to fixate on current outlays, but instead look forward to future returns. Sonata Software’s CEO Samir Dhir struck a similar note, projecting that AI-enabled services will contribute 20% of revenues over the next three years. Dhir revealed that Sonata is pursuing a $34 million AI pipeline involving more than 100 clients, even as AI is now embedded in nearly all client engagements.
This “invest-now, earn-later” mindset is a common refrain across the industry. Interestingly, it’s the mid-sized and smaller firms—not giants like TCS, Infosys, or HCLTech—that appear to be nimbler and more aggressive in clinching AI-led deals. While expectations were high that FY25 would mark the beginning of a tangible return on AI spending, the top-tier firms’ shrinking revenues suggest the inflection point may still be some distance away.
Dividends over disruption
Financial strategies adopted by India’s top IT firms reflect a cautious stance toward reinvestment in frontier technologies. Tata Consultancy Services (TCS), the country’s largest IT exporter, has been the most generous among its peers in returning capital to shareholders. Between FY21 and FY25, TCS distributed a staggering Rs 2.06 trillion through dividends and buybacks—nearly matching its Rs 2.07 trillion net profit over the same period.
In FY25, TCS’s payout ratio stood at 92.5%, a slight dip from 103.4% in FY24, but still well above the BSE Sensex average of 27.4%. The company declared Rs 44,888 crore in dividends, down 5.4% from the previous year. Meanwhile, firms like Tech Mahindra (91.2%), Infosys (82.4%), HCLTech (77%), and Wipro (62.6%) retained a larger share of profits for reinvestment or acquisitions.
Across the board, the top five IT firms returned Rs 4.15 trillion to shareholders against Rs 4.79 trillion in combined net profits—a payout ratio of 87%. TCS’s conservative approach to capital allocation may keep shareholders content, but it could constrain the firm’s ability to scale up AI capabilities at pace, particularly as global rivals like Accenture and IBM are aggressively investing in AI-driven services.
External pressures, internal adjustments
Adding to the challenge is a turbulent global environment. Uncertainty over US trade policies and erratic global demand have disrupted deal cycles and tempered client spending. TCS CEO K Krithivasan, in the Q4FY25 earnings call, cited delays in deal closures and discretionary projects due to ambiguity surrounding US tariffs. The firm’s Q4FY25 net profit declined 1.7% year-on-year to Rs 12,224 crore, even as revenue rose 5.2% to Rs 64,479 crore.
Wipro and Infosys also reported similar headwinds, with deal ramp-ups and client budgets under pressure. Yet, firms are responding with tactical shifts—diversifying geographies, expanding service lines, and doubling down on emerging technologies.
TCS, for example, has reported robust growth in domestic and regional markets, fuelled by AI and cloud services. Its strategic collaboration with IBM to develop India’s largest quantum computer in Andhra Pradesh exemplifies its long-term bets on breakthrough technologies. Infosys is enhancing partnerships with global clients like DNB Bank ASA to modernise core systems, deploying AI to deliver more responsive and personalised services.
Indian IT industry: A call for policy support
If India’s IT sector is to remain competitive and derive full value from its AI investments, the government must play a more enabling role. The Production-Linked Incentive (PLI) scheme that successfully energised manufacturing could be adapted to support AI and digital innovation. By incentivising reinvestment over dividends, such policy shifts could alter corporate behaviour.
Tax breaks on R&D, public-private collaborations on AI pilot projects, and government-backed AI infrastructure could bridge the gap between investment and commercial viability. With the right mix of corporate resolve and policy foresight, India can accelerate its journey from a global back office to a digital innovation powerhouse.