Indian IT sector 'bytes' into 2025 with cautious optimism amid big AI bets

The Indian IT industry steps into 2025 with hope and optimism of improved tech spending and stronger deal pipeline as businesses across-the-board take bold AI bets, but all eyes are on global macroeconomic cues as well as the US' stance on trade and high-skilled immigration as President-elect Donald Trump returns to White House next month.

With Q2 report card of most IT heavyweights fuelling hopes of an improved client demand over the coming quarters - industry pundits predict a notable rebound in growth and profitability metrics materialising by late 2025 or the second half of FY26, if all goes well.

 

Experts also expect tech M&A counters to buzz right through 2025, with big data, cloud and Gen AI (Generative AI) acting as major draws for companies with takeover appetites. Meanwhile, the IPO market - heady from 2024 highs - seems all primed up for yet another blockbuster year as a slew of tech startups are readying for a market debut to capitalise on euphoria.

Sindhu Gangadharan, chairperson of IT industry association Nasscom says a full rebound in tech and discretionary spending is projected by late 2025, provided global macroeconomic conditions stabilise and geopolitical tensions ease.

"The year 2024 witnessed a steady but uneven recovery in demand for tech services, with strong growth in areas like AI, cloud computing, and cybersecurity. Companies are increasingly prioritising investments in these transformative technologies to enhance efficiency and resilience," says Gangadharan, who took charge at the helm of Nasscom this year.

After creating a stir in 2024, Generative AI is now at a "transformative inflection point" and poised to redefine industries and fuel global innovation. While tech sector is broadening its services to include GenAI-powered analytics, intelligent automation, and personalised customer experiences, the non-tech sectors are expected to face significant disruption, with GenAI transforming marketing, operations, R&D and other operations.

Businesses, says Gangadharan, are likely to prioritise investments in cloud migration, AI/ML (Artificial Intelligence and Machine Learning) applications, as well as cybersecurity solutions as they plan for a resilient and future-ready infrastructure.

Companies too are scaling up hiring in areas of AI skills, machine learning, generative AI (GenAI), and cybersecurity as these technologies become core to digital transformation strategies.

Puneet Chandok, President of Microsoft India and South Asia sees a robust demand for specialised roles in AI, data science, and cybersecurity, within the Indian IT services and tech domains.

"The focus will be on upskilling and reskilling the workforce to meet evolving technological demands. We will also see a significant rise in talent and opportunities within Tier 2 cities, reflecting a broader geographic distribution of tech talent," he observes.

Gangadharan believes that 2025 will be all about accelerated tech adoption, increased IT budgets, continued recovery in BFSI, retail, and healthcare verticals among others.

Cloud migration and AI solutions will drive larger deal pipelines, positively impacting profitability, she said.

While the order book/revenue contribution from Gen-AI deals so far is limited, it is likely to pick up over the medium term as overall technology adoption becomes more pervasive, Deepak Jotwani, Vice President and Sector Head, Corporate Ratings at ICRA said.

While some green shoots have been sprouting in recent quarters, a marked recovery is expected by second half of FY2026, Jotwani further said, adding sectors such as BFSI have seen some recovery in past months but manufacturing and retail are yet to pick up pace.

Akhilesh Tuteja, Partner and Head, Clients and Markets at KPMG in India is of the view that discretionary spends in tech could begin returning "more robustly" by late 2025 as global companies stabilise growth and invest in digital capabilities.

For now, the management commentary remains cautiously optimistic for the export-led tech industry (Infosys and HCLTech raised sales forecast for FY25), and back home a sensational year of IPOs has ensured that scores of start-ups and digital businesses are queueing up for listing next year, to take advantage of extraordinary market rally.

Following in the footsteps of Swiggy and FirstCry, startups such as Zepto, Bluestone, Ecom Express, PhysicsWallah, InCred Finance, Ola (mobility), PayU, Ather, boAt, Pine Labs, are reportedly eyeing a public issue.

"The (IPO) momentum is likely to sustain given the continued buoyancy in the Indian capital markets," notes Jotwani.

After being in the grip of harsh and prolonged funding winter, startup space saw some pick-up deal momentum. "The funding scenario in 2025 is likely to be better than 2024. Investors will be cautiously optimistic and will continue to focus on due diligence, favour sustainable business models and innovation, especially targeting underpenetrated markets," Atul Monga, CEO and cofounder of Basic Home Loan says.

The year logged its fair share of controversies - founders engaged in open and public spats (Ola founder Bhavish Aggarwal Vs comedian Kunal Kamra), faced backlash over their endorsement of long work hours (Infosys founder N R Narayana Murthy, Indian-origin CEO of AI startup Greptile, Daksh Gupta) and became the target of online hate over social media posts on unrealistic workplace expectations.

The tech space presented picture of contrasts, oscillating between rapid highs and sudden lows.

Quick-commerce companies surged ahead competing for dominance, while the likes of Paytm and Byju's - once posterboys of Indian startup ecosystem - struggled to navigate challenges on multiple fronts.

As q-comm companies Zepto and Blinkit reshaped consumer habits and redefined ecommerce landscape, some established players embraced rapid delivery models. Flipkart forayed into quick commerce with 'Minutes' and Amazon is launching 15-minute deliveries starting in Bengaluru.

Year 2024 saw the tech sector walk the delicate balance between innovation and survival. Social media platform Koo, which had pitched itself as a rival and viable alternative to Twitter (now X) shut down with co-founders penning a heartfelt note about tough decisions and little yellow bird bidding adieu, and cryptocurrency platform WazirX's became the epicentre of a USD 230 million crypto heist that exposed the fragile nature of tech infrastructure.

Indian startups took on the might of tech world goliaths like Google, who also came under increased scrutiny from competition watchdog.

Earlier this year, founders of prominent Indian startups called out Google for removing many desi apps from Playstore over disagreements on US tech major's billing policy, and the acrimonious faceoff ended when Google restored the apps back following the Indian Government's intervention.

Competition Commission (CCI) stepped up the heat on big tech firms, including Amazon, Flipkart, Meta, and Apple. India's antitrust watchdog slapped a penalty of Rs 213.14 crore on social media giant Meta for unfair business ways with respect to WhatsApp privacy policy update done in 2021. The Commission also issued cease-and-desist directions and directed Meta and WhatsApp to implement certain behavioural remedies within a defined timeline.

"The regulatory developments in 2024 have been encouraging, particularly in how regulators have approached the industry's broader perspective. We anticipate the regulatory landscape in India to become more intense in 2025," Alliance of Digital India Foundation (ADIF) noted.