**India:** The IT sector witnesses a decline in overall contract sizes as generative AI boosts productivity, leading clients to demand up to 20% cost savings while per-unit pricing holds steady. Major firms like TCS, Wipro, and HCLTech report fewer large clients amid pricing pressures and evolving revenue models.
The information technology sector is undergoing notable changes in pricing strategies, as global clients increasingly demand tighter deal structures. While per-unit pricing in the industry has remained relatively stable, the overall size of contracts is on the decline. This shift is largely attributed to the rising adoption of generative AI (GenAI), which is reshaping the revenue models for domestic IT vendors.
Industry experts highlight that the pressure is not solely on individual rates but on ensuring greater value through enhanced efficiency. Venu Lambu, CEO-designate of LTIMindtree, noted that while unit pricing remains stable, “the size of the deal definitely is reduced,” reflecting a broader trend where clients expect the same level of service for lower overall costs.
Pareekh Jain, CEO of Pareekh Consulting, reinforced this view, stating that clients are looking for cost reductions of up to 20% for equivalent output. “They are expecting that what 100 people did can now broadly be done with 80,” he said. Jain expressed concern that without tangible efforts to reduce the required workloads, these shifts could threaten profit margins. Nonetheless, he observed that experienced vendors are witnessing rising revenue per full-time equivalent (FTE), suggesting that profitability might not universally decline.
The trend towards cost-efficiency is evident in the composition of large client accounts across several prominent IT firms. Tata Consultancy Services (TCS) reported a decrease in clients contributing over $50 million annually, falling from 139 in Q4 FY24 to 130 in Q4 FY25. Wipro observed a similar trend, with its clients contributing over $100 million dropping from 22 to 17 in the same period. HCLTech also experienced a minor reduction, with its count of clients generating over $50 million slipping from 53 to 52 between December and March.
The influence of GenAI on productivity is significant, driving these changes in client expectations. Jain noted that many firms are experiencing a decline in client engagements because the same amount of work now requires 20% less effort. This could potentially reduce revenue per client, prompting IT vendors to seek new growth strategies, such as expanding their geographical reach or diversifying the services offered to existing clients.
The dual impact of GenAI is widely recognised within the industry. C Vijayakumar, CEO of HCLTech, remarked during a recent earnings conference that generative AI is affecting both pricing negotiations and potential revenue streams, stating, “We expect both pricing pressures as well as new revenue opportunities.”
Despite concerns regarding diminishing deal sizes, there may be mechanisms in place to protect margins, especially given the current hiring trends. Jain noted that headcount growth has remained flat, even as revenue continues to inch upward, which helps maintain profitability.
In their assessment of Infosys, brokerage firm Motilal Oswal echoed these thoughts, pointing out that pricing remains robust and that the company is looking at potential growth through value-based pricing strategies.
However, the competitive landscape remains challenging. Julie Sweet, CEO of Accenture, acknowledged in the company’s Q4 FY25 earnings call that there has been a general softening of pricing, highlighting the difficulties service providers face in adapting to a transformed demand environment.
Source: Noah Wire Services
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