Rattled to the core: Indian IT on shaky wicket after Trump tariffs

While IT company customers would become wary yet again of discretionary tech spending amidst uncertainties, the chances are that AI-led productivity gains, leading to outcome-based spending, will take centerstage for IT companies to sustain.

“As firms are forced to determine how they’ll survey the impending economic uncertainty or decline, the IT services industry has no option but to double down on AI-led productivity gains and deep domain expertise to help clients weather the storm,” said HFS Research

Akash Verma, practice director at global research firm Everest Group believes that the reciprocal tariffs will impact “IT services demand, not supply”. According to him, in the short term, specific sectors including manufacturing, electronics, and parts of retail/CPG will face cost pressures and uncertainty, leading to cuts in non-essential and discretionary IT spending.

“However, the exemption of semiconductors and pharmaceuticals is a critical relief. In the medium term, businesses will adapt by optimising costs, diversifying suppliers, and increasing automation, ultimately creating new growth opportunities for service providers,” he said.

In the near to midterm, NelsonHalls’ principal analyst believes tariffs will impact companies across sectors, especially retail and manufacturing. The focus will shift to managing the fast-evolving tariff situation to optimise supply chain and pricing.

“This is an existential challenge requiring calibrated steps by even Fortune 2000 companies. There will be a freeze on discretionary spending on IT and a cutback on some non-critical existing projects until there is more clarity, which is another unknown since the administration is known to revise policies rapidly,” Parab told Moneycontrol.

Resetting growth expectations

Piyush Pandey, SVP- Equity analyst- IT and Telecom sector, Centrum Broking told Moneycontrol, “Higher US inflation can affect future interest rate cuts by the Fed. We might see less cuts. Also, it creates downside risk to US GDP growth. This can affect tech spending of clients there…For IT companies, the recovery in discretionary tech spending by clients might get delayed.”

Analysts at BNP Paribas in a note said that some of the US macroeconomic data have started showing signs of a slowdown, raising the risk of “a stagflation at best and a recession at worst”.

“IT Services demand, especially discretionary, is unlikely to be left untouched from this slowdown. Investors have accordingly slashed growth expectations sharply and now expect FY26 revenue growth to be weaker than in FY25,” the note said.

HFS Research added, “The best case will be a harsh but brief storm, as we hope a sudden economic downturn can bounce back in late 2025. But this summer will likely be one of frozen spending, cost cutting, and restructuring.”

On the other hand, Parab believes there has always been a bit of temporary re-balancing between offshore, onshore, and nearshore sourcing and business models due to geopolitical and economic events, and something similar will happen in IT but more due to the impact of AI and not necessarily the trade wars.