Indian IT Giants Face Prolonged Slump: Weak Demand, AI Disruption & Trade Tensions Threaten Recovery

India’s IT industry is facing a challenging period, with recovery unlikely before 2026. Major companies like TCS, Infosys, Wipro, and HCLTech are struggling due to weak demand and reduced spending on IT services. Accenture’s recent slowdown, particularly in government contracts, signals broader industry concerns, as the U.S. administration focuses on cost-cutting measures. Additionally, rising global trade tensions and new U.S. tariffs are adding to market uncertainty, making the first half of fiscal 2026 look uncertain.

Analysts at Kotak Institutional Equities warn that weak demand and fewer large deals in 2025 will limit revenue growth in 2026. The increasing adoption of generative AI is further intensifying competition. While sectors like banking and healthcare had shown signs of recovery, cautious client spending is slowing progress. Citi Research predicts a modest 4% revenue growth for Indian IT firms in 2026, similar to 2025, with competition expected to rise further. With demand remaining weak, major deals slowing, and economic conditions uncertain, the industry is set for a prolonged period of sluggish growth.

Indian IT Giants Face Prolonged Slump: Weak Demand, AI Disruption & Trade Tensions Threaten Recovery

India’s information technology (IT) sector, a cornerstone of the country’s economy, is bracing for continued difficulties over the next few years. Industry giants like Tata Consultancy Services (TCS), Infosys, Wipro, and HCLTech, which once thrived on global outsourcing, are now grappling with sluggish demand and reduced client spending. Experts predict that these challenges could persist until 2026, dashing hopes for a swift recovery.

Accenture’s Warning Reflects Industry-Wide Strain

A key indicator of the sector’s health comes from Accenture, a global leader in IT services. The company recently highlighted a noticeable drop in client spending, particularly in the United States. Julie Spellman Sweet, Accenture’s CEO, attributed this slowdown to the U.S. government’s intensified focus on cost-cutting measures under its new administration. Delays in finalizing government contracts have directly impacted Accenture’s revenue, signaling potential ripple effects for Indian IT firms that rely heavily on U.S. clients. Historically, Accenture’s performance mirrors broader industry trends, making its struggles a red flag for India’s tech sector.

Trade Tensions and Economic Uncertainty Add Pressure

Compounding these issues are rising global trade tensions, including new U.S. tariffs on imports. These policies have injected uncertainty into markets worldwide, with the U.S.—a critical revenue source for Indian IT companies—at the epicenter. Analysts caution that this instability could dampen growth prospects, pushing any meaningful recovery to the latter half of 2026. The hesitation among businesses to commit to long-term IT projects amid fluctuating trade policies and economic unpredictability further exacerbates the problem.

AI Innovation and Shrinking Mega-Deals Pose New Hurdles

While advancements in artificial intelligence (AI) present opportunities, they also bring challenges. Generative AI, in particular, is becoming a double-edged sword. As companies rush to adopt this technology, competition intensifies, forcing firms to innovate rapidly while managing costs. However, experts from Kotak Institutional Equities note that weak demand and a decline in large-scale contracts in 2025 will likely stifle revenue growth in 2026. The scarcity of these “mega deals”—once a lifeline for IT firms—means companies must now compete for smaller, fragmented projects, squeezing profit margins.

Sector-Specific Recovery Fails to Offset Broader Weakness

Certain industries, such as banking and healthcare, had shown tentative signs of revival earlier this year. Yet, lingering market volatility has made clients cautious, delaying decisions on IT investments. For instance, banks exploring digital transformation or healthcare providers upgrading data systems are now prioritizing short-term savings over long-term projects. Citi Research forecasts a modest 4% revenue growth for Indian IT firms in 2026, mirroring 2025’s lukewarm performance. This stagnation stems not only from muted demand but also heightened competition in niche areas like cloud computing and cybersecurity.

Navigating a Path Forward

To adapt, Indian IT companies are diversifying their offerings and investing in upskilling employees to handle emerging technologies like AI and machine learning. However, these efforts require significant time and resources, with benefits unlikely to materialize immediately. Additionally, geopolitical shifts, such as reshoring initiatives in Western countries, threaten to reduce reliance on offshore IT services, further pressuring the sector.

Conclusion: A Cautious Outlook

In summary, India’s IT industry faces a perfect storm of challenges: cautious spending, geopolitical tensions, technological disruption, and fierce competition. While innovation and adaptation offer hope, the road to recovery appears long and uncertain. Stakeholders must prepare for a prolonged period of restrained growth, with any upturn hinging on global economic stability and a resurgence in client confidence. For now, the sector’s resilience is being tested as it navigates one of its most turbulent phases in decades.