Indian technology services companies are expected to see at least 10 percentage points year-on-year increase in revenue coming from digital transformation deal wins by the end of financial year 2025, reflecting improving demand environment for the IT sector as clients start to relook tech spends after nearly two years of cautiousness.
The overall deal mix of top IT services companies is shifting from being dominated by cost optimisation deals in FY24 to transformation deals slowly inching up in FY25. For instance, just the top four Indian IT companies including Tata Consultancy Services (TCS), Infosys, HCLTech and Wipro have signed 18 digital transformation deals in the last 7-8 months of FY25, according to data accessed from market intelligence firm UnearthInsight.
In FY24, cost optimisation deals and vendor consolidation deals accounted for nearly 50 percent of the revenue of tech services companies, while larger digital transformation deals, which involve modernising legacy tech stacks and backend of enterprises, contributed about 25 percent of revenue, and remaining 25 percent came from other deals, according to UnearthInsight data.
In turn, FY25 is estimated to see revenue contribution from digital transformation deals go up to 35 percent from 25 percent in the previous year, and revenue from cost optimisation deals will come down to 40 percent, indicating growth green shoots in discretionary and demand recovery for IT sector clients. This shift will be seen after nearly two years of demand slump.
Over the past two years, clients across industries especially in the key markets for IT companies like North America, were grappling with macroeconomic uncertainties, inflationary pressures, and impending recession. This had led to these clients cut back discretionary tech budgets to save costs.
Industry experts, however, said that this jump in digital transformation deals coupled with improved discretionary spending is not very pronounced yet.
“These digital transformation deals are seeing a very slight uptick coming from newer sectors like aviation, airlines and telecom. These deals will continue though we didn’t see any big new deals getting announced in Q3. But next quarter we will likely see a handful of announcements, which will increase revenue contribution from transformation deals by 10 percent points,” Gaurav Vasu, founder and CEO of UnearthInsight told Moneycontrol.
Pareekh Jain, founder and CEO, EIIRTrend said, “Some of the digital transformation deals are also coming from Gen AI as well. In the last two quarters, overall we have seen some uptick in transformation deals in BFSI, CPG, retail and healthcare space. These are majorly driven by Generative AI use cases and improving customer experience.”
But, North America market, which accounts for nearly 50-60 percent of the total revenue of IT services companies, is seeing a decline in digital transformation deals from the BFSI, Retail and Semiconductor sectors. However, there has been healthy growth in cost optimization deals, the data said.
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