Is India’s IT Sector at an Inflexion Point?

If you have tracked India’s Information Technology (IT) industry over the years, you have probably seen a familiar pattern: big tech service companies, campus hiring euphoria, software exports, and rapid expansion. And there’s more in 2025. 

Billion-dollar bets on data centres, artificial intelligence (AI) reshaping how tech work gets done and also layoffs from a legacy IT firm, tell us that it’s no longer just about scaling. 

Whether you’re curious about how this shift could affect your portfolio or just want to make sense of the headlines, this article unpacks everything you currently need to know about India’s IT industry. 

India’s IT Sector: An Overview

The IT sector has long been one of the country’s shining stars, driving economic growth, providing millions of jobs, and placing India at the heart of the global tech industry. It’s also a major contributor to the country’s GDP, accounting for almost 7.5% of India’s economy as of FY23 and is projected to hit 10% by FY25.

But over the recent years, the tech scene in the nation has been going through some major changes. The sector has evolved from offering basic IT services like software development to embracing cutting-edge technologies such as AI, cloud computing, and cybersecurity. 

At the same time, massive investments in digital infrastructure, such as data centres and cloud services, are laying the groundwork for the next decade of growth. 

Despite these strides, challenges persist. The industry faces a talent shortage and wage inflation, driven by high demand for specialised skills. Economic slowdowns also weigh on client budgets, leading to slower revenue growth and impacting profitability, especially during Q1FY26.

But everything is not lost. Reports say that overall, the industry’s growth remains robust if moderated. According to Nasscom, tech revenue is expected to grow about 5% this year to around $283 billion, and they anticipate further growth in the future.

Among all this, the rise of AI, the Global Capability Centres (GCCs) are likely changing how companies operate and who they hire. These are gradually becoming innovation powerhouses. 

AI Disruption and Evolving Business Models

How is AI shifting the IT sector’s gears?

To understand this, we need to revisit the fundamentals. Earlier, Indian IT giants built their businesses on the “pyramid” model –  a broad base of junior engineers performing standardised work. But now, AI-driven tools are handling some of that workload, giving a “structural reset” in service delivery and talent. For example, software development teams are seeing 5–15% productivity gains from AI automation, especially in coding and testing, according to industry leaders. 

One headline-grabbing development has been the decision by Tata Consultancy Services (TCS) to undertake what is arguably its first major workforce reduction. TCS announced it will “release” (lay off) about 12,000 employees in 2025 – roughly 2% of its workforce. In total, around 12,261 roles, primarily mid- and senior-level positions, are affected. The company framed this move as part of becoming a “future-ready organisation,” investing in technology and realigning skills for the AI era.

Notably, TCS’s CEO emphasised that the cuts are driven by skill mismatches rather than direct AI replacement, targeting areas where staff could not be redeployed effectively. Even so, the magnitude of this move sent shockwaves through the industry and raised concerns about broader job stability.

In stark contrast, Infosys (India’s second-largest IT firm) has publicly ruled out mass layoffs. CEO Salil Parekh responded to the TCS news by affirming that Infosys’s headcount continues to grow and that the firm focuses on retraining staff instead of cutting jobs.

This divergence in strategies – TCS’s targeted trimming vs. Infosys’s upskilling – exemplifies how companies are navigating AI disruption. 

Talent and Hiring Trends

The workforce changes go beyond layoffs. Across the industry, there’s a talent reshuffle underway. Even with the so-called “restructuring”, demand has exploded for experts in AI, cloud computing, cybersecurity, and data science.  

According to Naukri, AI/ML roles in May 2025 rose, registering a 25% YoY increase in hiring. Demand for these roles surged across metro cities, led by Delhi NCR (+35%), Chennai (+34%), and Kolkata (+33%). This growth was consistent across experience levels, with the 13–16 years segment growing by 36%, and even fresher hiring posting a 22% rise.

Hiring Trends by Industries

Further, recruiters noted that fresh graduates entering AI, machine learning, cloud, or security roles are commanding salaries about 30% higher than industry norms for entry-level positions, as per reports.

According to Indeed’s PayMap survey, the IT and IT-enabled services (ITeS) sector continues to lead the salary rankings across all experience levels. Entry-level tech professionals are earning up to ₹28,600 per month, while those with five to seven years of experience are making approximately ₹68,900.

This net growth indicates that new-age jobs are offsetting the elimination of lower-end roles, at least so far. The talent landscape is dividing: low-skill, repetitive IT jobs are dwindling, but opportunities for digitally skilled professionals are surging. India’s tech workforce is still growing and now totals nearly 5.8 million.

The Rise of Global Capability Centres (GCCs)

Another major engine of change in India’s tech scene is the rapid growth of Global Capability Centres, or GCCs. 

What are GCCs?
These are the captive technology and innovation centres that multinational corporations (from Google to Goldman Sachs) set up in India to leverage the talent pool. The country is home to over 1,700 GCCs, employing 1.9 million professionals and generating $64.6 billion in revenue as of 2024. The sector is projected to expand to $105 billion by 2030, with around 2,400 GCCs employing over 2.8 million people, as per government statement.

Now, the establishment of GCCs has both positive and negative impacts on the Indian IT sector. 

Good, because these centres work on cutting-edge projects, from AI research and product development to advanced analytics, rather than just support functions. In fact, nearly 50% of Indian GCCs now drive end-to-end product delivery, and about 30% are global hubs for AI and analytics for their parent companies. US-headquartered firms account for roughly half of these new centres, thanks to India’s combination of skilled talent and cost efficiency.

State governments are courting GCC investments by developing tech parks and easing regulations, further incentivising growth. From an investor perspective, the GCC trend underscores the confidence of global multinationals in India’s long-term story. The fact that 80% of the Global 2000 firms still don’t have a GCC in India suggests substantial headroom for further growth.

Now, for the bad part, as GCCs grow, they’re pushing up salaries and making it harder to find and keep skilled talent. This could reduce the cost advantage that Indian IT firms have long enjoyed. Many IT companies are also unhappy about losing top employees to these GCCs, some of which they helped set up. There’s a worry that GCCs might eventually take over the kind of outsourcing work Indian IT firms have traditionally done.

What Should Investors Watch Out For?

The ongoing transformation of India’s IT sector presents a host of opportunities and some challenges for long-term investors. Here are a few key takeaways and themes to watch:

1. AI-led Innovation: This is a no-brainer. Investors may look for companies investing heavily in R&D and employee upskilling (signals of forward-thinking management). The sector’s shift from plain outsourcing to digital solutions means higher value work, which in time can mean better pricing power for Indian vendors, potentially boosting profitability.
2. Data Infrastructure: India’s data centre growth is a structural opportunity. As capacity doubles, their revenues are set to climb. Power and renewable energy companies also gain, since data centres require reliable power. Telecom companies and tower infrastructure firms also benefit from the broader digital infrastructure expansion (small-cell networks for 5G, fibre optics, etc., go hand-in-hand with data centres).
3. Talent and Education: We are already seeing IT companies partner with online education firms to train freshers or even mid-career staff. For example, Infosys partnered with Udacity, Coursera, and edX to offer courses in AI and related technologies to its employees, byteXL, an EdTech company, teamed up with Microsoft to provide innovative AI and ML programs for engineering students, and more. Investors might watch for edtech companies aligning with industry needs.
4. Domestic Tech Product Scene: Historically, India’s tech industry was service-oriented. But the convergence of government support and a thriving startup ecosystem is giving rise to more product and IP-driven companies. The IndiaAI mission could nurture startups building AI tools for Indian languages. The National Quantum Mission, with a budgetary approval of ₹6,003.65 crore for eight years, aims to position India as a global leader in quantum technology.
5. Resilience and Diversification: Finally, investors should note the resilience the Indian IT sector has shown. The IT industry, though still experiencing slow growth due to global macroeconomic challenges and evolving market dynamics, FY25 has seen a year of strategic resilience. The companies that adapt to new tech while managing costs will likely emerge as winners.

The Bottom Line

Is the Indian IT sector at an inflexion point? Well, somewhat. 

Growth across the sector is slowing down after a sharp spike driven by the pandemic. The workforce at India’s leading IT companies has been shrinking. At the same time, new opportunities and challenges are emerging, particularly with the rise of automation and AI.

If you’re interested in exploring the IT sector further, model portfolios on smallcase could offer a way to diversify your investments. You can check them out here.

Disclaimer: This analysis is for educational purposes and does not constitute investment advice. Market conditions can change, and past performance is not indicative of future results. Investors should conduct their own research and/or consult a certified financial advisor before making investment decisions.