AI-Fueled Mega Contracts Reshape India's $283 Billion IT Landscape
The October-December quarter witnessed a remarkable surge in billion-dollar contracts for India's premier software services firms, marking the most prolific period for mega deals in nine quarters. This spike underscores how artificial intelligence is fundamentally transforming the sector, even as traditional offshoring models confront persistent challenges.
Quarterly Deal Surge Highlights AI Transformation Focus
According to recent earnings filings, Cognizant Technology Solutions Corp, Tata Consultancy Services Ltd, and Infosys collectively reported three significant mega deals during the last quarter of 2025. These agreements primarily involve deploying advanced AI tools to modernize clients' legacy IT infrastructure, representing a strategic shift toward technology-driven transformation.
Phil Fersht, chief executive of HFS Research, emphasized this evolution, stating, "It signals a clear shift back toward platform scale transformation deals, not a return to labour-heavy outsourcing. Large enterprises are consolidating vendors and committing to multi-year programs that combine technology modernization, AI enablement, and operating model change."
Notable Contracts and Client Engagements
The recent quarter saw several high-profile engagements:
- Tata Consultancy Services secured a substantial contract from an unnamed North American financial institution, highlighting continued demand in the banking sector.
- Cognizant clinched a $1-billion agreement with Switzerland-based pharmaceutical giant Novartis, focusing on AI-led services, data management, and application oversight.
- Infosys Ltd won a landmark 15-year, $1.6 billion IT modernization contract with the UK's National Health Service, demonstrating expansion into healthcare digitalization.
These deals follow earlier mega contracts, including Cognizant's agreements with UnitedHealth Group and another undisclosed client in April-June 2025, and Coforge Ltd's $1.56 billion contract in March 2024.
Vendor Consolidation and Competitive Dynamics
Analysts observe that Fortune companies are actively reducing their number of IT vendors to streamline long-term software services costs. This trend intensifies competition among India's largest providers as they vie for a larger share of consolidated contracts.
Ashutosh Sharma, vice-president and research director at Forrester, explained, "Most of these mega deals are increasing because IT vendors are going after consolidation deals. They are promising more productivity by lowering their pricing to transform the clients' IT infrastructure. This way, they are in turn trying to grab more revenue share."
AI Revenue Growth and Strategic Approaches
Leading firms report significant AI-related revenue growth:
- HCLTech reported advanced AI revenue of $146 million in the December quarter, representing a 19.9% sequential increase in constant currency terms.
- TCS ended 2025 with $1.8 billion in annualized AI revenue, with Generative AI emerging as its fastest-growing vertical at 17.3% quarterly growth.
Aarthi Subramanian, chief operating officer of TCS, outlined a dual AI strategy: "First, 'Get AI ready': Partner with them to build a strong enterprise technology foundation required for their AI transformation. Secondly, 'Lead with AI': Engage with business and technology teams to help them establish early competitive advantage in AI."
Persistent Margin Concerns and Profitability Challenges
Despite the deal surge, IT firms face ongoing questions about profitability. The previous spike in mega deals during 2023 included:
- Infosys' $1.6 billion IT modernization project with Liberty Global in August 2023.
- HCLTech's $2.1 billion managed services contract from Verizon.
- TCS' $1 billion agreement with Jaguar Land Rover in September 2023.
Analysts have raised concerns about thin margins from contracts like TCS's BSNL deal and upfront costs associated with mega contract ramp-ups. Initial investments in talent, infrastructure, and hardware typically inflate one-time expenses, compressing margins.
Recent financial data reveals:
- Infosys' margins narrowed by 30 basis points to 20.7% in FY24.
- HCLTech's operating margins remained unchanged at 18.2% for the same fiscal year.
- TCS reported a 50 basis point improvement to 24.6%.
Skepticism About AI Transformation Scale
Some industry observers caution that current AI-related work may not represent transformative business change. Peter Bendor-Samuel, founder of Everest Group, noted, "We have yet to see a large amount of work driven by AI transformation. The industry talks a lot about AI and signing work related to it. However, most of this work is about applying AI to their code generation, not using AI to transform their customers' business."
Sectoral Spending Patterns and Future Outlook
Over the past three years, telecom companies awarded four mega deals to IT outsourcers, while healthcare and life sciences firms emerged as the second-largest spenders. This distribution reflects ongoing digital transformation priorities across industries.
The recent deal surge follows a relative lull in 2024, occurring amidst global trade uncertainty, geopolitical tensions, and stricter US visa scrutiny affecting India's largest market. As the sector navigates these challenges, the race for AI-driven consolidation deals continues to reshape competitive dynamics while raising fundamental questions about sustainable profitability in the new technological landscape.
