IT sector cuts costs, deals slow, shifts toward negotiator’s market

In the fiscal first quarter of 2025, IT companies adopted aggressive internal measures to protect profitability as large-deal momentum slowed. This marked a shift in strategy, emphasizing cost control and operational efficiency over growth-led expansion. A central focus has been the reduction of selling, general, and administrative (SG&A) expenses. Companies have tightened discretionary spending, implemented streamlined processes, and reduced variable costs to maintain healthy margins.

Another critical lever has been the delay or deferment of employee salary hikes. Several leading players, including TCS, have postponed pay increases, citing the uncertain macroeconomic environment, project delays, and pricing pressures. This departure from the industry’s traditional annual hike cycle signals a more cautious approach to cost management in light of subdued demand.

Furthermore, firms have made substantial changes to bench policies. New guidelines now limit the duration employees can remain unassigned to billable projects. For example, TCS has capped the permissible bench time to 35 days per year. This move aims to ensure higher utilization rates, encouraging faster reskilling and redeployment of talent toward high-demand areas such as AI, cybersecurity, and cloud engineering. The emphasis is on maintaining a lean, agile workforce that is immediately deployable across critical engagements.

Deal activity has also seen a shift, with the pace of large contract signings slowing due to softer client demand and cautious discretionary spending. Many contracts are being renegotiated under tighter terms, with clients demanding more value at lower prices. Tariff discussions and overseas policy changes have added a layer of complexity, resulting in delays or re-evaluations of major projects. Although deal pipelines remain strong, conversion rates have dipped, reinforcing the theme of longer decision cycles and more intense pricing negotiations.

This environment has led to the emergence of a “negotiator’s market,” where clients hold greater bargaining power. Contracts are increasingly structured with shorter durations and performance-based pricing, placing pressure on vendors to differentiate with efficiency, innovation, and speed of execution. Margins remain under scrutiny as vendors compete not only on quality but also on value delivery.

Analysts expect these trends to persist into the second half of the fiscal year. Companies are likely to continue exercising cost discipline, with wage increases, hiring, and discretionary spending deferred until clearer signs of recovery emerge. While there may be some revenue stabilization toward the end of the year, profitability will remain the dominant metric, driven by continued internal optimizations rather than external market expansion.

In summary, the IT sector is entering a consolidation phase, where success hinges on operational excellence, resource utilization, and flexibility. With demand still uncertain and pricing under pressure, companies are pulling every lever internally to preserve margins. This shift reflects the industry’s move toward a more value-conscious, negotiations-driven marketplace.

CT Bureau