Overview
After a period of slow growth, the Indian IT sector saw its biggest rebound in Q3 FY25, signaling a dramatic turnabout. The most recent quarter offers fresh hope for the sector with rising revenue numbers, significant deal wins, and indications of a recovery in discretionary spending. The third quarter of FY25 was a turning point, as businesses demonstrated their best recovery in 18 months. Despite the difficulties of a typically bad time characterized by furloughs, the quarter ending December 31, 2024, saw better constant currency revenue, deal wins, and operating margins.

The IT services markets have shown the strongest recovery in the past 18 months, according to these results (Q3FY25). Phil Fersht, CEO of HFS Research, told Moneycontrol that many businesses have begun to increase their investments in AI, data infrastructure, and cyber security since the US market is no longer paralyzed by the election.

Quarter 3: Recovery of the Eurozone
Q3 highlighted the recovery in a few other sectors, including the Eurozone, whereas Q2 focused on the banking, financial services, and insurance (BFSI) vertical and the North American geography. According to Gaurav Parab, Principal Research Analyst at consultancy firm NelsonHall, growth in other sectors has followed the BFSI rebound in prior quarters, as anticipated. Growth in other verticals has also been made possible by the BFSI recovery. This, according to Parab, was due to geopolitical clarity, a clear US mandate, and the settlement of disputes that endangered international stability.

Hiring Trends
There is no longer any doubt about the US’s H1-B visa regulations or whether IT companies would have been negatively impacted. Since they have been recruiting more locals for a while, the big companies, including TCS, Infosys, HCLTech, and Wipro, have stated that they rely very little on these visas. Additionally, the top five exporters of IT services added 10,412 workers over a nine-month period (9MFY25), which represents a cautious recovery after they laid off roughly 57,608 workers during the same period the previous year.

Coming to hiring figures of major tech firms, over 5,000 new hires were added by Infosys in Q3, and the company anticipates hiring over 20,000 new hires in FY26. Further, HCLTech has consistent hiring momentum by adding 2,134 new people to its workforce. Despite a long-term hiring expectation of 40,000 new hires in FY25, TCS saw a drop of 5,370 employees. Speaking of Wipro, although Wipro reduced its workforce by 1,157 workers, the firm placed a strong emphasis on increasing retention and matching hiring strategies to demand. Lastly, business restructuring was the main reason given by Tech Mahindra for their 3,785 employee layoffs.
Thus, across the board, attrition rates were still high but controllable. Hiring is anticipated to increase in FY26 as the demand climate improves.

Discretionary Spending on the rise in Q3FY25
In their Q3FY25 earnings conferences, the leading IT services companies in India stated that they have a “cautiously optimistic” outlook on discretionary spending. Although there were signs of recovery, businesses were hesitant to declare it a full-fledged comeback. Early indications of improvement were seen in discretionary spending overall, as clients resumed investments in particular fields like artificial intelligence, cloud computing, and digital transformation.

According to TCS CEO K Krithivasan, the company is confident that 2025 could surpass 2024 because of certain early indications of discretionary expenditure. TCS’ immediate rival, Infosys, reported increasing discretionary expenditure in industries including financial services and retail in the US and Europe, supporting its enhanced revenue growth estimate. Salil Parekh pointed out that client investments are gradually becoming more optimistic, while the rate is still slow.

Similar opinions were expressed by HCLTech, the third-largest provider of IT services in India, which attributed the increase in discretionary expenditure to customers’ emphasis on efficiency and innovation, especially in Generative AI (Gen AI) and data-driven transactions. However, Wipro is witnessing a gradual but steady recovery in discretionary expenditure. While clients are still cautious, there is increasing momentum in areas related to transformative projects, according to Chief Executive Officer Srinivas Pallia.

High TCV deal wins and management commentary about the increase in discretionary spending are favorable signals, according to Pareekh Jain, Founder, and CEO of EIIRTrend. Additionally, most providers are seeing a steady increase in discretionary demand in particular categories, according to Yugal Joshi, leader of technology services research at management consulting firm Everest Group. Joshi further added that they refer to it as “green shoots” rather than a trend. Although it is more difficult to make a trend from this, discretionary demand typically rises after a decline of five to eight quarters, and the period is nearly over. As a result, clients’ discretionary spending will improve in the future.

The Gen AI Boost
In Q3FY25, generative artificial intelligence (Gen AI) became a major growth driver, progressing from pilot to active client operations deployment. According to TCS, Gen AI revenue increased in Q3 FY25 and made up roughly 10–12% of total revenue last quarter. Infosys’ emphasis on advanced AI skills is demonstrated by the development of more than 100 agentic AI solutions and the expansion of its small language model offerings. More feasible AI use cases were made possible by HCLTech’s approximately 85% cost reduction in the implementation of big language models when compared to early 2023.

Future Outlook
The prognosis for the IT industry is cautiously bullish as companies go into Q4 and beyond. IT majors are setting themselves up for long-term success as discretionary spending appears to be steadily increasing. In FY26, several factors will be carefully examined, including the conversion of big deal wins into actual revenue growth, the expansion of AI-led transformation initiatives, the sustained demand in the BFSI, retail, and healthcare sectors, hiring trends and attrition rate management, and macroeconomic stability in the US and Europe.

The Indian IT industry seems to have made progress, despite ongoing threats like shorter deal cycles and difficulties in emerging markets. The industry may have a significant resurgence in FY26 if the recovery momentum continues.