The top six information technology (IT) services companies in India, led by Tata Consultancy Services, Infosys, Wipro ,and HCLTech, secured a record number of deals in FY24 even as they scaled back on hiring, marking a significant shift from the post-pandemic hiring boom.

The similarity in the fourth quarter performance of these companies doesn’t end here. All of them saw a noticeable discrepancy between the increased deal wins and the actual revenue outcomes. This paradox is largely due to the ongoing weaknesses in the global macroeconomic environment which continue to impact financial performance, they said.

Infosys, for example, said it achieved a record high in deal value, securing contracts worth $17.6 billion throughout the year, but still slashed its revenue growth expectation for FY25 between a mere 1-3% from a previous 4-7%. In response, many brokerage firms such as Nomura and ICICI Securities have reduced their target prices for the Infosys stock.

TCS, Wipro and HCLTech also boasted robust deal pipelines; however, these successes did not translate into proportional revenue gains, primarily due to weak discretionary spending across their client bases, they said.

Despite these challenges, however, these companies saw growth in revenues from the manufacturing sector, managed to generate a tad higher revenue from Europe, and made significant advances in the areas of artificial intelligence (AI) and generative AI (GenAI), positioning themselves at the forefront of technological innovation in the industry.

Headcount falls

In FY24, Infosys, TCS, Wipro, LTIMindtree, and Tech Mahindra collectively experienced a reduction in their workforce by 73,600 employees. The companies attributed this reduction to a strategic emphasis on enhancing operational efficiency, reflecting their adaptation to evolving global demands, and ongoing economic uncertainties.

“The immediate headcount reduction has happened primarily driven by market and demand environment as well as operational efficiency… long term as we move to IP based platforms AI, there could be a divergence coming more and more in terms of headcount growth,” Saurabh Govil, CHRO of Wipro said. “But if you look at our entire portfolio there’s a large number of work we do that is man power intensified, so it will be a combination of both going forward,” he added.

Jayesh Sanghrajka, the Chief Financial Officer of Infosys, underscored the strategic nature of these adjustments, stating, “When we started the year we were at 77% utilisation… we had to realign some of those as growth changed and now we are at 82% utilization, our attrition has also come down significantly so that is why you see the net headcount reduction.”

Bucking the trend, HCLTech added a net 1,537 new employees in FY24 and recruited over 12,000 freshers.

Despite the overall fall in the workforce, all the six IT companies laid out strategies for hiring in FY25. TCS intends to hire 40,000 new freshers, while HCLTech and Tech Mahindra said they would hire over 10,000 and 6,000 freshers, respectively. Meanwhile, Infosys plans to blend campus with off-campus hiring.

Demand from the US

In FY24, demand from the US, the major market for Indian IT service companies, fell as clients curtailed discretionary spending amid broader macroeconomic uncertainties, leading to delays in deal conversions and affecting revenue streams. The sector was further impacted by the banking failures in early 2023 and the US Federal Reserve’s strategy of maintaining higher interest rates for longer periods, thus disrupting financial services deals, a sector from which Indian IT companies derive at least 25% of their total revenue.

TCS saw a reduction in its revenue share in North America, decreasing from 53.4% in FY23 to 51.1% in FY24. Similarly, Infosys also experienced a dip in sales from its North America to 59.6% from 61.0%. Tech Mahindra’s revenue share, too, fell 1.4% in the region.

In contrast, HCLTech saw a strong show in the region and also notched its highest ever growth there aided by three $100 million deals won. “We probably have delivered significantly better growth than anybody else (in North America). It’s also the highest growth for us. So we have very strong momentum in North America. And the same is true in the last year for financial services,” C Vijaykumar, CEO of HCLTech said.

Wipro also demonstrated stability and even modest growth in the Americas, with its Americas 1 region increasing its revenue share from 28.5% to 30.0%, although Americas 2 saw a slight decrease from 30.8% to 30.1%.

The brighter side

These companies managed to increase their revenues from Europe and their manufacturing verticals, which contributes 6-20% to their overall topline. Infosys increased nearly 2% of its revenue share from Europe in FY24, while TCS expanded by 1.5%.

The growth in the Europe region comes at the backdrop with most Indian IT giants like Infosys, TCS, Wipro, LTIMindtree, and Tech Mahindra have been actively acquiring companies in the region, reflecting a strategic pivot towards this region due to its faster growth compared to North America.

For instance, Infosys made a notable acquisition of in-tech, a firm focused on the German automotive industry, for $480 million, marking its largest acquisition. Similarly, Wipro’s acquisition of London-based Capco for $1.45 billion represents its largest ever, aimed at enhancing its BFSI capabilities, which is now helping the company’s growth in its consultancy business.

HCLTech also focused its expansion strategy in Europe with significant acquisitions like the German ASAP Group and Budapest-based Starschema. Tech Mahindra followed suit by acquiring Com Tec Co IT, making it their second-largest acquisition after Satyam.

Acquisition of ASAP Group helped HCLTech increase its revenue share in both Europe and its manufacturing vertical, the company’s management said. The revenue share in Europe increased by 0.4%, while the manufacturing vertical grew nearly by 1%.

GEN AI FRENZY

TCS said it has doubled down on its commitment to AI and GenAI technologies and the deal pipeline in these areas is now valued at $900 million. TCS CEO Krithivasan emphasized the strategic importance of these initiatives, stating, “Our investment in AI and GenAI is not just about staying current. It’s about setting the pace, leveraging these technologies to transform client businesses and our own operational models.”

HCLTech also said it was seeing strong traction in the generative artificial intelligence space, but said the revenue contribution from those deals are not that significant yet. “Generally, we are seeing a lot of traction in AI and Gen AI related opportunities where clients are looking for realistic and pragmatic benefits. We have had good success in building a strong pipeline because of the successful proof of concepts that we have done with various clients,” CEO Vijaykumar said.

Bleak outlook

“I don’t want to hazard a guess and say that growth would be returning in Q1 or Q2, it will be calling in too soon,” Chief Executive Officer K Krithivasan said. HCLTech CEO said that he expects a similar consolidation that was seen in FY24 in FY25 and guided a 3-5% year-on-year growth.

A recent Crisil Ratings report also said the Indian IT services sector will likely see a second year of subdued growth in FY25, with modest projected revenue increases of 5-7%, amid ongoing global economic challenges that have limited growth in tech spends in primary markets in the US and Europe