📰The End of Easy Growth for India’s IT Giants | Daily India Briefing

After a surprise earnings rally, India’s outsourcing giants face an uncomfortable reality that stock prices don’t yet reflect. Today, we explain more.

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Macro

• The India-EU trade deal is to include some farm goods while excluding most that hurt Indian farmers. The reasoning is political considerations since there are millions upon millions of farm owners. EU President von der Leyen is visiting India at the end of the month, putting pressure on negotiators to announce a deal then. 

• Recent FTA signings will not be enough to offset US tariffs due to low trade volumes, according to Barclays. While ground breaking deals with Oman and New Zealand are a positive step, trade volumes with those countries are miniscule as compared to the US. 70 percent of India’s exports to the US remain in threat due to 50 percent tariffs.

Equities

• General Atlantic-backed ASG Hospital is planning a $500 million (₹45 billion) IPO next year. It would offer up 15 percent of the company in the share sale. ASG is a super-specialty eye-care chain with 180 hospitals in 90 cities across India. It is investing $221 million (₹20 billion) for eye center expansion and renovation over the next 4 years. 

• Expect banks to see higher profits, led by HDFC and ICICI, due to rate cuts boosting loan growth. Lending margins will continue to stabilize leading to an expected 10 percent y-o-y profit growth for HDFC and 5 percent for ICICI. 

• Dr. Reddy's Labs is poised for a 20+ percent drop in profit due to pricing pressure on its US cancer drug. Lenalidomide is currently being squeezed with multiple generic companies lowering their price for the exported drug.

Alts

• The new 75 country US visa ban excludes India but puts pressure on companies to think more local. IT firms have already started to boost hiring in the country where offices are (US employees in US offices, etc) but will continue leaning in this direction. It is fair to assume that immigration policies will only become stricter, not easier. 

• GLP1 patents are expiring soon in India, which will launch a flood of generics. Sales for Eli Lilly have been $66.5 million (₹6 billion) so far but use will grow when patents expire. Current costs are $154 (₹14,000) per month but will go down to $21 (₹1,890) per month by 2030.

Policy

• India is starting to recover its $1.6 billion (₹145 billion) that its owed by Tiger Global. They will add a $107.8 million (₹9.7 billion) tax refund that the hedge fund claimed. The ruling will likely affect how all future global exits in India go. 

• India is nearing a deal to buy 114 French Rafale jets. The planes will contain 50-60 percent parts manufactured by Indian companies. In 2015, India had canceled a deal to buy 126 jets from France but its air force industrial quality is now dwindling. 

• The BJP has won Mumbai polls with leads in 117 of the 225 seats on offer.Newly elected officials (with a 5 year term) will be tasked with leading a $30 billion (₹2.7 trillion) infrastructure overhaul to put Mumbai on the level of international cities like Hong Kong and Tokyo.

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The End of Easy Growth for India’s IT Giants

India’s $200 billion (₹1.8 trillion) outsourcing industry has been under siege since last year when Trump limited H1-B workers allowed in the US. Recent earnings injected some hope after Infosys raised its full year revenue forecasts causing the stock to lift 10 percent both domestically and at the NYSE. Though management and investors seem excited, there are still structural questions about the space even beyond the current US administration. 

Infosys and Tata Consultancy Services (TCS) remain under profitability pressure: TCS reported a 14 percent decline in net income y-o-y while Infosys registered a more mild 2.2 percent decline. Both cited new labor codes which bumped up compensation liabilities like social security. These expenses are not a temporary accounting quirk but a reminder that margins are becoming harder to defend. More worrying for investors is that demand itself is no longer as dependable as it once was. Enterprise technology spending has slowed as global companies hesitate amid trade tensions and policy uncertainty, particularly in the US, the industry’s largest market.

At the same time, the operating model that powered India’s rise as the back office of the world is being tested. Outsourcing firms rely on large pools of engineers in India supporting smaller teams deployed overseas. Changes to US immigration rules, including sharply higher costs at $100,000 (₹9 million) for work visas, threaten to make this hybrid model more expensive. Meanwhile, clients are redirecting budgets toward artificial intelligence systems that promise automation and decision making with far fewer humans in the loop. Agentic AI caused TCS’s AI services revenue to swell to $1.8 billion (₹162 billion) for 2025 but revenue forecasts continue to slowdown. Back in 2022, TCS was forecasted to do $37 billion (₹3.3 trillion) in 2026 but that number has now declined to $29 billion (₹2.6 trillion). 

The challenge for India’s services giants is that AI cuts directly into their traditional value proposition. While companies like TCS are right to tout rapid growth in AI related services, the uncomfortable question is how many employees are actually needed to deliver them. Productivity gains across the sector have been modest for years, with revenue and profit per worker barely moving in dollar terms with annual gains being about 2 percent. If AI tools allow a small group of engineers to do the work that once required many more, the existing headcount becomes a liability rather than an asset.

For global investors to regain lasting confidence, outsourcing firms will need to show that they can extract meaningfully higher productivity from their workforce, even if that requires painful restructuring or heavier investment.

See you tomorrow.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

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