$20 bn IT contracts up for renewal amid GenAI wave, global uncertainties

India’s top six information technology (IT) services players, along with Nasdaq-listed Cognizant Technology, have deals worth at least $20 billion up for renewal this year, according to people familiar with the matter. Deals worth $14 billion were renewed in 2024.

 

These renewals are particularly significant as they come at a time when US-imposed tariffs and global macroeconomic uncertainties have created a cloud of uncertainties. 

The deals are spread across verticals, such as banking, financial services and insurance (BFSI), retail, consumer packaged goods, and manufacturing. Most of these contracts — signed during or just after the pandemic — have a tenure of three to five years. 

“There will not be many straight renewals, and many of these enterprises will try to go to the market to get some competitive bids,” said Saurabh Gupta, president, research and advisory, HFS Research. 

Some of the major contracts coming up for renewal include Tata Consultancy Services’ (TCS’) deals with Star Alliance, a consortium of airlines based in Germany, and Nielsen; Infosys’ deals with GE Appliances and Daimler; HCLTech’s with UK-based life insurer Chesnara; Wipro’s with German electric utility company E.ON and Petrobras of Brazil; and Tech Mahindra’s with Circle Health. 

“All of them are looking for the next wave of cost reduction, efficiency, and how artificial intelligence (AI) can play a role in that, because these were the deals signed before AI became such a big thing. So, clients are going to ask service providers what they can do with AI and where the next wave of value will come from,” added Gupta. 

AI and generative AI (GenAI) are expected to play crucial roles in deal renewals going forward, as clients look to build more efficiencies into their operations and reduce costs. 

Infosys, for example, is looking to integrate AI and add it as a new revenue stream in its existing $3 billion deal with German automaker Daimler. The company hopes this will help extend the partnership beyond 2028 and ensure a steady revenue flow.

Such offerings will be especially important in sectors like manufacturing, retail, and CPG, which are likely to be most affected by the tariffs imposed by the US President on almost every major country. Analysts say these sectors are already bearing the brunt of the uncertainty, with decision-making slowed and hiring nearly at a halt in the US. 

“The impact will be bigger on the industries most affected by tariffs, and that’s where we’ll see slower decision making and likely more focus on extending existing contracts until there’s better clarity on the macroeconomic outlook,” Stanton Jones, distinguished analyst at research firm ISG, told Business Standard. 

That could also mean a silver lining for IT services firms, as macroeconomic headwinds are likely to translate into more and larger cost-optimisation deals. According to experts, enterprises have to reduce costs. But unlike in the past, they are not banking those savings. They need the savings to fund transformational programmes around AI, which are shaping the contours of current deals. 

Jones said large enterprises would continue to optimise costs through large deal activity. “That is the reason we saw so many mega deals last year, because companies were looking to fundamentally change their cost structures through technology and transformational modernisation, which IT services firms excel at. In exchange, they are signing up for longer-term deals, increasing the total contract value.”

 

Wipro, India’s fourth-largest IT services provider by revenue, signed a 500 million-pound deal with Phoenix Group to accelerate the operational transformation of the UK's largest long-term savings and retirement business. Similarly, L&T Technology Services signed a 50 million-euro deal with a European automaker earlier this week.

 

However, such cost optimisation deals can also mean a pressure on margins in the near term. “We believe large companies like TCS and Infosys could see muted EBIT (earnings before interest and tax) growth at a low to mid-single-digit CAGR (compound annual growth rate) over the next two years in our bear-case scenario,” Morgan Stanley said in a note in March.