AI Killed Organic Growth So Indian IT Went On A Record Acquisition Binge

Something has shifted in how India's technology services industry thinks about growth.

Companies across the top, mid and emerging tiers of the Indian information technology (IT) industry spent a combined $7.1 billion on acquisitions over the past two years, $5 billion in 2025 and $2.1 billion so far in 2026.

Why Organic Growth Is No Longer Enough

The $300 billion global technology services industry had a difficult fourth quarter. Most large players posted annual revenue that either declined or grew in low single digits. Artificial intelligence (AI) is compressing contract pricing, clients are consolidating their vendor lists and discretionary technology spending has been cautious.

That combination leaves acquisition as one of the few reliable ways to add clients and revenue quickly. Reportedly, analysts said:

• Artificial intelligence pressure on margins has made organic growth structurally harder.
• Vendor consolidation is shrinking the number of suppliers large enterprises want to work with.
• Buying a company with an established client base shortcuts both problems simultaneously.
• Geographic and vertical entry points are valuable, but horizontal AI capability is what firms will ultimately need to acquire.

Who Is Buying What

India's IT companies are acquiring businesses at relatively low valuations, particularly those facing slower growth or revenue pressures.

• LTM acquired Randstad's technology and consulting services business across parts of Europe and Australia for €160 million despite the unit generating over $500 million in annual revenue, valued at just 0.3 to 0.5 times price-to-sales.
• Tech Mahindra picked up Avant Techno Solutions for 28 million Canadian dollars, another company with recent revenue declines, at a similar valuation multiple.
• Hexaware Technologies bought Consulting Professionals Services Holdings for approximately GBP 11 million.
• Earlier this year, Wipro completed its $375 million acquisition of Mindsprint, another deal aimed at strengthening its capabilities and client offerings.

The recent acquisitions point to a broader trend of Indian IT firms buying smaller or slower-growing businesses at relatively modest valuations to expand capabilities, strengthen client relationships, and accelerate adoption of new services.

The Money Behind The Deals

Most of these acquisitions have been funded through internal cash reserves. The transactions are largely cash-based, with payments made upfront or structured with performance-linked payouts. This approach is common among IT services companies, which typically maintain strong cash positions on their balance sheets.

The top five Indian IT companies, TCS, Infosys, HCLTech, Wipro and Tech Mahindra, generated cash flows equivalent to 106% to 115% of their net income in FY26. This provided them with ample financial flexibility to pursue acquisitions without raising debt.

Coforge stands out as an exception. The company raised a three-year term loan to finance its $2.35 billion acquisition of Encora.

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Nifty IT Logs Best Day In A Year

While the industry works through its strategic reset, the stock market sent a different signal on Tuesday. The Nifty IT index jumped 4.2% to 31,116.6, its biggest single-session gain since May 2025. The index has now gained 7.6% across three consecutive sessions, comfortably outpacing the Nifty 50 which fell 1.8% over the same period.

Reportedly, analysts said the rally reflects improving global software sentiment and growing evidence that enterprise artificial intelligence adoption is expanding technology budgets rather than simply replacing existing service providers. Rupee depreciation, a strong sector order book and improving discretionary spending outlook were cited as additional tailwinds.

On the charts, analysts pointed to a bullish hammer pattern forming on the Nifty IT monthly chart, suggesting a potential trend reversal with the next target seen at 32,000 to 32,100.

Source:

The Economic Times