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Jatin Dalal, chief financial officer of Cognizant Technology Solutions Corp., is the latest to call out AI’s impact on the sector. In a conversation with Nomura analysts on 16-17 September, Dalal said that AI is pushing clients to revisit their deals and demand greater AI-led savings.
“The CFO (Dalal) noted that historically the company has seen ~15-20% of contracts come up for renegotiations annually where ~15-20% has been the usual discounts/productivity benefits passed on to customers,” said Nomura analysts Abhishek Bhandari and Karan Nain in a note dated 23 September. “In the AI world, given visible savings, he expects renegotiations to inch up towards 25% and productivity-led savings expectations from clients to increase to ~20-25%,” the note added.
Dalal added that companies would need to spend more on IT services to capture AI and hardware benefits, though current investments remain subdued.
“Subdued spending on IT services currently is driven both by AI-led deflation and tariff-led uncertainty,” said the Nomura analysts.
AI is prompting companies to have a relook at existing contracts with their IT vendors and are expecting more AI-led savings.
Cognizant is not alone. Infosys Ltd CFO Jayesh Sanghrajka told Kotak Institutional Equities analysts that generative AI (GenAI) may deflate project costs for the client, but the savings would be redeployed into new initiatives.
“GenAI may be deflationary at the project level, but the savings will be redeployed into newer programs,” Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna said in a note dated 11 September.
Sanghrajka, however, added that GenAI would increase its market and bring more business opportunities in the future.
Tata Consultancy Services (TCS) has also called out AI-led deflation in the past, but not directly.
“Because of AI if there is a productivity gain, we will try to share those gains with our customers. So, in that sense, that will be what we did with $100 if we are able to do with $95 or $90. And if I’m going to realize a benefit, we will share the same with the customer,” K Krithivasan, chief executive and managing director TCS, had said during the company’s post-earnings interaction with analysts on 10 April.
Cognizant, Infosys, and TCS reported fiscal-year revenues of $19.74 billion, $19.28 billion, and $30.18 billion, respectively, growing 2–3.85%. Cognizant, which follows a January-December calendar, has more than three-fifths of its workforce stationed in India.
Since the launch of ChatGPT in late 2022, share prices of India’s top IT firms have shown a mixed reaction. While TCS and Infosys, the country’s two largest IT services companies, have fallen 10.5% and 8.5% respectively, shares of Cognizant and HCL Technologies Ltd (HCL Tech) have risen 8.8% and 28.7%.
Queries sent to the country’s five largest IT services companies remained unanswered till press time.
Mid-sized firms feel the squeeze
Even mid-sized firms are feeling the impact. Hexaware Technologies Ltd CEO Srikrishna Ramakarthikeyan told Mint in July that AI is compressing IT operations and software development costs during new and renewed deals.
“On the negative side, I think there will be some compression in IT operations when new deals are done or when deals are renewed. There’s some compression in software development as a consequence of AI,” Ramakarthikeyan had said.
Mint had reported on 21 July that AI is causing companies to relook at the type of contracts they engage in. Fortune 500 clients are shifting contract types as well, favouring time-and-material arrangements over traditional fixed-price pacts to capture AI-driven efficiency gains. Brokerages have been warning of these trends since early 2025.
BMO Capital Markets analyst Keith Bachman in a note on 16 April said, “We believe that generative AI will act as a deflationary force for service delivery as generative AI solutions mature. Many if not most areas of supply/service delivery will be impacted including deployment, application development and maintenance (ADM), BPO (business process outsourcing), and digital agencies, in our view.”
Another brokerage has said that AI would limit growth in the country’s IT services market and eat into existing revenue as well.
“AI is likely to limit growth in (the) IT services market to 1.5%-3% CAGR over 2024-29 due to three key reasons. (1) Clients may delay IT spends on concerns of rapid AI advancements rendering current investments obsolete. (2) AI-led productivity gains may impact existing IT services revenues by 20% over FY25-30, while growth opportunities arising from AI may be back ended,” said Jefferies analysts Akshat Agarwal, Surinder Thind, and Ayush Bansal, in a note dated 11 September.
For now, none of the large homegrown IT services companies give out any metrics from GenAI. In contrast, Accenture Plc and IBM report GenAI-related orders. Since September 2023, Accenture has secured $7.1 billion in GenAI-related work, while IBM claims $7.5 billion.
AI reshapes workforce dynamics
While AI is expected to hurt growth, its effects on employees are already evident. On 27 July, TCS announced that it would lay off 2% of its workforce, or 12,200 employees, as “part of strategic initiatives including investments in new tech areas.”
A few days earlier, management of HCL Tech, India’s third largest IT services firm, said it would release employees who could not be deployed on new projects.
“Of course, we have had a good amount of people released due to the productivity improvements. Now, not all of them are readily re-deployable, because the requirements for some of the entry-level or lower-end skills are being addressed through automation and other elements,” said C. Vijayakumar, CEO of HCL Tech, during the company’s post-earnings analyst call on 14 July.
HCL Tech did not specify what percentage of its workforce would be impacted. TCS and HCL Tech ended the June quarter with 613,069 and 223,151 employees, respectively. Even tech centres of global firms such as Walmart, Tesco India, and Thryve Digital Health reported headcount reductions in certain roles, Mint reported.
As AI continues to reshape contracts, costs, and staffing, India’s IT sector—one of the country’s largest employers—is confronting a structural shift that is being closely watched by shareholders.
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