Pricing pressures and cost optimisation demands from various industry verticals are having an effect on the performance of IT companies, and this is being seen as a larger global trend that is intensifying, leading enterprises to prioritise operational cost rationalisation over discretionary technology spending.
Pricing models are also shifting away from long term contracts to usage-based payments and shorter contract periods.
During their respective earnings call, each company talked about growing pressure from different verticals. While Infosys said price pressure remained stable in Q4, HCL Tech reported an impact in retail and manufacturing, including auto. C. Vijayakumar, CEO and MD at HCL Tech said this impact will spill over to all verticals very quickly.
Wipro said the manufacturing and automotive sector is calling for reduced costs while TCS reported cost optimisation demands from consumer business group, healthcare and life sciences, and the BFSI verticals.
“The Consumer Business Group saw heightened caution and delays in discretionary projects, especially in the US. This was driven by the significant drop in consumer sentiment in February, which preceded changes in global trade and tariffs creating a domino effect on retail CPG and TTH industries… in healthcare, deals are taking longer to close. Customers are moving cautiously and prioritising critical business initiatives. Growth programs are being either postponed or timelines are being reassessed,” said K Krithivasan, CEO at TCS.
The commentaries by companies are in line with Greyhound Research’s observations that pricing pressure is most acute in capital-intensive sectors, where technology costs have to directly compete with core operational investments.
According to the Greyhound Sector Pulse 2025, 66 per cent of manufacturing CIOs and 61 per cent of BFSI CIOs renegotiated technology contracts mid-term to preserve margins.
The manufacturing CIOs now insist on shorter contract durations (under three years) while the BFSI CIOs favour elastic, usage-based pricing models over fixed annual licensing. Both sectors are championing pay-as-you-go pricing models over traditional capex-heavy deployments.
“Notably, 39 per cent of manufacturing CIOs are blending IT procurement with operational procurement teams to enforce financial discipline—a significant structural shift in enterprise IT governance. Sector dynamics are amplifying technology cost scrutiny,” said Sanchit Vir Gogia, Chief Analyst and CEO at Greyhound Research.
“That is a sense we have based on just doing some analysis on how each customer is impacted and what will that impact mean to both upstream and downstream in their value chain. I think it’s something which is going to be broad-based. It might show up in Retail and Manufacturing to start with, but it’s only a quarter lag before it has an impact on other verticals,” he said.
In terms of a solution, companies appear to be turning towards GenAI to help with cost optimisation. Data from Greyhound showed that among Fortune 2000 CIOs, 58 per cent are renegotiating current contracts, while 43 per cent are actively considering best-of-breed over bundled platform purchases to control costs. Meanwhile, 34 per cent are experimenting with hybrid procurement models such as FinOps-managed IT consumption to reduce unpredictable outlays.
Companies holding up margins
On an annual basis, India’s IT sector (Tata Consultancy Services or TCS, Wipro, Infosys and HCL Tech) grew 50 bps but declined sequentially. Wipro managed to keep margins flat at 17.5 per cent while TCS and Infosys reported a 30 bps decline. HCL Tech slipped to 17.9 per cent from 19.5 per cent in the previous quarter.
Stating that IT companies’ revenue majorly comes from managed services and discretionary spends, Ashutosh Sharma, Vice President and Research Director at Forrester, said, “Managed services deals used to be fairly profitable. Over a period of time, due to automation, etc., the profits from these deals fell to single-digit or low double-digit margins. So, companies were making their numbers were through discretionary spends.”
“Until last calendar year, the numbers were looking good in terms of the deal numbers. But last quarter, many of those deals started to fall behind. The new deals coming in are more of a top-up in the form of a managed services relationship. So, this supply dried up, putting a lot of margins under pressure,” he added.
Sharma said this pressure will remain until people start spending again, leading companies to postpone all the expenses.
Published on April 27, 2025
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