AI Bets Test India’s IT Giants As Margins Slip And Clients Push Back

India’s top IT exporters are chasing AI with a missionary zeal, but their latest earnings calls confirmed that the cost-arbitrage era is over, and its AI-powered replacement may not pay off soon.

The January-March results of Tata Consultancy Services, Infosys Technologies, and Wipro Ltd were revealing not for what they reported but for what they signalled. 

All three leaned heavily on AI narratives to offset muted financials. TCS’s net profit declined 1.7% from a year earlier. Infosys reported a nearly 12% drop and forecast revenue to shrink in 2025-26. Wipro, despite a headline 26% profit rise, warned that its revenue could fall by up to 3.5% in the first quarter.

Each firm touted dozens of GenAI client engagements and AI-first platforms such as WisdomNext, ai360, and Topaz. Yet, it was equally clear that these initiatives were guzzling cash and adding little to margins.

Where once cost savings boosted profits, those gains are now being handed back to clients as discounts just to keep deals flowing.

The margin squeeze was visible in TCS’s operating metrics and in Wipro’s guarded tone. Infosys’s flat guidance underlined the broader unease.

Hiring patterns confirmed the pivot—and the pain. TCS froze headcount and skipped wage hikes. Wipro axed 6,000 jobs but added 6,000 freshers. Infosys trimmed staff by 1,500 and plans to hire 20,000 more next year, betting that a deeper pyramid will restore margins. But green recruits don’t deliver like the old model’s clockwork engineers.

The skills gap is widening. Generalist coders are out; AI, cloud and cybersecurity specialists are in. That shift has doubled the share of niche tech hires compared to a decade ago—and sent compensation spiralling. AI skills command 30–50% premiums, and training programmes are no longer a quick module but a full-blown reskilling effort.

TCS claims to have retrained 400,000 staff in GenAI, Infosys has upskilled 70% of its workforce, and Wipro has 40,000 staff on the AI track. But even large-scale retraining may not close the capability gap, especially with global capability centres offering fat paycheques and picking off top talent.

Then there’s the external pressure. The US and Europe, which account for 80% of Indian IT’s revenues, are wobbling. While TCS noted some stability in BFSI clients, Wipro flagged sector slowdowns. Long-term contracts are fraying as clients demand quicker turnaround and measurable ROI.

Crucially, clients are no longer paying for transformation—they expect it to be bundled in. This wrecks the pricing logic behind IP-heavy tools like Cobalt or WisdomNext, which aim to command premiums. Instead, clients are negotiating harder, sensing that efficiency gains should flow to them, not the vendor’s bottom line.

Nasscom projects the industry will touch $300 billion by 2025-26, with AI as the defining growth lever. But the cost-arbitrage era is over, and the new value proposition remains unproven. India’s IT giants are chasing relevance in an AI-centric future, but they are paying for it with profits.

Investors applauding the AI pivot should be wary. If contracts reward scale over margin and staff over skill, then the industry’s fabled resilience may be tested anew.

The coming quarters will separate hype from payoff. Some firms may emerge as credible AI integrators. Others may discover that disruption doesn’t just destroy old models—it hollows them from within.