Playing IT safe: Indian tech firms tread carefully in AI race

Bengaluru: Indian IT companies remain hesitant to take big bets to position themselves at the forefront of the artificial intelligence (AI) wave, raising concerns that they may lose out in the medium term.

Industry experts believe that pressure to protect margins is preventing Indian IT firms from making bold restructuring moves. While companies such as Tata Consultancy Services (TCS) have initiated selective strategic steps, such as entering the data centre business, most domestic IT firms are opting for incremental changes, even as the business model undergoes rapid transformation.

“The industry seems to be stuck in a mid-single-digit growth phase. Although earnings have stabilised, there are no clear signs of recovery yet. The sector appears to be bottoming out, but momentum is missing. All IT firms are in some form of restructuring mode, but they are moving slowly. Market factors, particularly margin concerns, are holding them back,” said Pareekh Jain, IT outsourcing advisor and Founder of Pareekh Consulting, speaking to Bizz Buzz.

“Globally, many companies are willing to take a margin hit as they aggressively pursue AI opportunities. Indian IT firms, however, are not taking similarly aggressive steps that could help them stay ahead in the AI game,” he added.

Among Indian IT majors, TCS has undertaken some strategic initiatives, including reduction of headcount, entry into the data centre business, and acquisitions in recent quarters. Other firms such as Infosys, HCLTech and Wipro have also been acquiring AI-focused companies to build capabilities. However, none of the Indian IT firms appear keen to dilute their margin profile to gain leadership in AI-led projects.

AI engagements are exerting downward pressure on operating margins, as automation replaces several traditional processes. Industry sources indicate that some companies are reluctant to take on AI projects that come with lower margins.

Since stock market valuations place significant emphasis on margins, market pressure is further discouraging Indian IT firms from scaling low-margin AI projects. At the same time, while the employee pyramid is undergoing a structural shift, Indian IT companies are avoiding drastic workforce restructuring due to social sensitivities around job losses in India.

During the third quarter of FY26, most Indian IT firms have improved their operating margins or maintained steady levels though growth rate remained stuck in mid-single digit levels. In the post-pandemic period, the sector had witnessed double-digit growth, which has steadily tapered off since then.