Indian IT’s mega deals spike on AI push, but there’s not much to celebrate yet

In October-December, Cognizant Technology Solutions Corp, Tata Consultancy Services Ltd and Infosys reported the merger of three mega deals, the highest in nine quarters, according to earnings filings. These include using artificial intelligence (AI) tools to transform customers’ legacy information technology (IT) infrastructure.

But analysts say Fortune companies are reducing the number of IT providers they work with to reduce long-term software services costs.

“This signals a clear move back towards platform-scale transformation deals, not a return to labour-intensive outsourcing,” said Phil Fersht, CEO of HFS Research. “Large enterprises consolidate vendors and commit to multi-year programs that combine technology modernization, AI enablement and operating model change.”

The surge in major contracts points to how artificial intelligence is reshaping the software services industry even as local offshore companies grapple with lower demand due to global trade uncertainty and stricter visa inspections in their biggest market, the United States.

The return of megadeals

Tata Consultancy Services (TCS) said during the post-earnings analyst call that the company secured a mega deal from a North American financial institution in the December quarter. The company did not disclose the name of the customer.

Listed on Nasdaq Cognizant signed a $1 billion contract with Switzerland-based Novartis during the quarter. The New Jersey-based IT outsourcing provider, whose staff is mostly based in India, will handle the pharma giant’s AI-powered services, data and application management.

In October, India’s second-largest IT firm Infosys Ltd won a 15-year IT modernization contract worth $1.6 billion with the UK’s national healthcare provider NHS.

Previously, Cognizant had signed two major deals in the April-June 2025 period: an IT infrastructure contract spanning an average of five years from UnitedHealth Group and another deal from an unnamed customer. Mid-sized software services company Coforge Ltd also signed a $1.56 billion contract, its largest, in March last year.

“A lot of these mega-deals are on the rise because IT vendors are pursuing consolidation deals,” said Ashutosh Sharma, vice president and research director at Forrester. “They promise greater productivity by lowering their prices to transform customers’ IT infrastructure. This way they try to capture more revenue share.”

Sharma expects margins to continue to tighten overall. “Margins for traditional IT services such as coding, application management and call center support will shrink. These will be offset by new services led by artificial intelligence platforms that are not low-margin.”

The last time companies won more mega deals was in July-September 2023; one each by TCS and HCL Tech and two by Infosys.

Buying after a break

The latest surge in such deals follows a recession in 2024 and comes amid uncertainties over US tariffs and geopolitical tensions in 2025. The last major contract came in January 2024, when TCS won a $2.5 billion, 15-year IT modernization deal from Aviva.

“We are seeing massive AI-led service transformation, net new deals happening, and service transformation becoming an increasingly fundamental part of decision-making across the board,” said C Vijayakumar, CEO. HCLTech during the company’s post-earnings analyst call on Jan. 12. “Certain use cases, such as legacy modernization driven by AI, are also generating particular interest among our customers.”

HCLTech reported advanced AI revenue of $146 million in the December quarter, up 19.9% ​​sequentially on a constant currency basis. Advanced AI includes Agent AI, physical AI, robotics, and large-scale data center. Figures in fixed currency do not affect exchange rate fluctuations.

TCS also expects a surge in large automation deals.

“We’re seeing the innovation-to-build cycle accelerating sharply, with three times faster builds we’re delivering to our customers this quarter,” TCS chief operating officer Aarthi Subramanian said during the company’s post-earnings analyst call on Jan. 12.

TCS closed last year with annual AI revenue of $1.8 billion, with Gen AI being the fastest growing segment with 17.3% quarterly growth at constant currency.

Subramanian outlined a two-pronged AI strategy: “First, ‘Prepare AI’: Partner with them to build a strong enterprise technology foundation needed for AI transformations. Second, ‘Lead with AI’: Engage business and technology teams to help them achieve an early competitive advantage in AI.”

But Peter Bendor-Samuel, founder of research firm Everest Group, called these agreements vendor-combination deals and said “we haven’t yet seen a large amount of business driven by AI transformation.”

“The industry talks a lot about AI and signature work around it. But most of that work is about applying AI to code generation processes, not about using AI to transform their customers’ businesses,” he said. “It’s true that there is some work involved, but it’s small compared to the bulk of the work they do.”

Mega deals bring margin concerns

IT firms are also facing questions about profitability and margins since the previous deal surge in 2023.

The latest surge in mega deals comes as Infosys completed a $1.6 billion IT modernization project with Liberty Global in August 2023. Around the same time, HCLTech won a $2.1 billion managed services contract from Verizon. TCS received a $1 billion contract from Jaguar Land Rover in September 2023, while Infosys signed a $1.5 billion deal with an unnamed global customer.

TCS has also bagged mega deals from UK National Employment Savings Trust and state-run Bharat Sanchar Nigam Ltd during April-June 2023. Infosys received a massive contract from British Petroleum during the same period, while Cognizant was rewarded with a mega deal by CoreLogic in January of the same year.

Telecoms companies have awarded four mega deals to IT outsourcing providers in the last three years, while healthcare and life sciences companies came in second among the biggest spenders.

However, analysts have expressed concern over the “thin” margins TCS is getting from the BSNL deal while also questioning Infosys and HCLTech on up-front costs due to the increase in mega contracts. IT vendors often have to invest in talent, infrastructure and IT hardware at the beginning of such projects, increasing one-time costs and reducing margins.

Infosys’ margins narrowed by 30 basis points to 20.7% in FY24. HCLTech’s operating margin remained unchanged at 18.2% this fiscal year. TCS rose 50 basis points to 24.6%. A basis point is one hundredth of a percentage point.