As revenue from the United States (US) hits a speed bump, Europe and Asia Pacific are coming to the rescue of the Indian Information Technology (IT) sector. North America accounts for over 50 per cent of the global $1.3 trillion tech services spend. But companies cutting back discretionary spends due to increasing economic and geopolitical uncertainty and taking the GCCs route, is hurting Indian IT services business. 

The revenue of top tier IT firms TCS and Infosys grew in low single-digits, and Wipro’s declined in FY24. The geographic mix shows the US market underperformed with regard to all three IT majors, but UK, other parts of Europe, and India/APAC regions helped mitigate the impact.

At TCS, FY24 revenue came in at $29.1 billion, growing 4.1 per cent year-on-year (y-o-y) in constant currency (CC) terms. However, revenue from North America — TCS’ biggest market— fell by 0.2 per cent. In comparison, revenues from the US grew by 15.3 per cent in FY23.

800-million deal

TCS’ UK revenue, with 16.5 per cent share, grew by 10 per cent in the fiscal and helped boost overall growth. A 15-year deal with insurer Aviva, and an €800 million digital transformation deal with JLR helped TCS in the UK. Interestingly, India, which brought in just 5 per cent of TCS revenue in FY24, grew 20 per cent on the back of a large BSNL deal bagged by TCS. India revenue grew at average 6 per cent in pre-pandemic years.

Infosys reported a $18.6 billion revenue in FY24 at 1.4 per cent y-o-y growth. The company has a larger share of revenue (60 per cent) from the US compared to TCS and that declined 1.1 per cent in the fiscal. However, Infosys’ revenue from Europe and the rest of the world (APAC markets, MEA etc) grew 6.3 per cent and 3.9 per cent, respectively.

Wipro’s IT services revenue declined 4.4 per cent in FY24 at $10.8 billion. Wipro’s geographic mix is Americas 1, Americas 2, Europe and Asia Pacific-Middle East Asia(APMEA), and revenue from all segments declined.

Reducing dependence

With US amidst a geopolitical storm and elections , analysts say Indian IT firms will need to reduce dependence on the US market to start showing recovery.

Gaurav Vasu, founder and CEO of UnearthInsight, says the top tier IT firms have started increasing focus on regions outside the West, and cites TCS’ India growth in FY24 as an example. “UnearthInsight predicts emerging markets such as Africa, Middle East, India, Southeast Asia and others will grow at a CAGR 8-10 per cent over next 2-3 years for tier-1 IT firms on the back of public sector, corporate and AI deals,” he added.

Also read: Infosys Q4 results: Are analysts not learning lessons or is the company faltering? 

Ramkumar Ramamoorthy, partner, tech advisory firm Catalincs, says Europe has now matured to the ‘large deals’ stage for Indian IT firms. “The IT services companies have invested in building regional leadership and leveraged acquisitions to grow this market,” he adds. Infosys, for instance, acquired German engineering R&D services firm ‘in-tech’ last week.  

However, analysts note that the current climate also makes diversification tough. “Companies are dropping prices to retain large clients; they are hyper-focused on cost reduction to keep margins from dropping,” says Phil Fersht, founder and CEO, HFS Research.

Crisil estimates the IT services sector to see a second consecutive year of sluggish growth in fiscal 2025.