Infosys needs a reboot: Past code, future load

It's becoming clear that Infosys - and India's $200 billion IT services industry - is up against more than a routine downturn or an AI-driven scare. The company has repeatedly trimmed its sails on growth expectations, signalling deeper issues. In October, Infosys reduced its full-year revenue guidance to a 3.75-4.5 per cent growth, then cautiously revised it up to 4.5-5 per cent by January. Yet even after these resets, Infosys managed only 4.2 per cent growth for FY25, missing its modest target. Peers aren't faring much better - Tata Consultancy Services (TCS) and Wipro also turned in disappointing quarters amid client jitters. Wipro is so uneasy about demand that it projected a 1.5-3.5 per cent revenue decline for the coming quarter, citing now-stalled US tariffs as an added headwind. When India's top tech exporters are praying for flat sales, it's a sign that something is fundamentally off in the engine room.

Many observers have attributed the malaise to a cyclical global slowdown in tech spending or the upheaval caused by generative AI. Sure, delayed projects and Chatgpt headlines don't help. But those are surface ripples. The bigger problem is structural - the very ground beneath Indian IT is shifting. For decades, the global software industry had numerous inefficiencies and "frictions" that required armies of engineers to resolve. That friction was the business model: Indian firms thrived by helping companies maintain clunky on-premise systems and custom software, offering a labour-cost advantage to tackle tedious integration and maintenance work. An entire economy and talent pipeline grew around these needs. However, new cloud-based tools and automation platforms are now eliminating a lot of that grunt work. A process-mining startup like Celonis boasts that it can "fix inefficiencies [clients] can't see" - effectively doing via software what used to require a large team of IT staff. Enterprise customers are increasingly embracing off-the-shelf cloud solutions and low-code platforms, thereby reducing their reliance on bespoke code development. In short, the inefficiencies that fueled India's IT boom are being systematically eliminated. What happens to the outsourcers when the grease that kept the wheels turning is no longer needed in such quantity?

This poses a far more serious challenge than a typical recessionary dip. Indian IT giants are attempting to pivot - emphasising cloud services, AI offerings, and consulting capabilities - but the transition is not easy. They face nimble competition from global consulting firms and Saas providers that often outmanoeuvre them. Meanwhile, India's workforce dynamics underscore the structural nature of the issue. Over the last two decades, a key driver of India's middle-class growth has been the steady creation of IT jobs. Now that engine is sputtering. As analyst Anand Tandon notes, approximately 200,000 tech graduates enter the workforce each year, but many will not find jobs as easily as before, and some existing tech workers risk being gradually made redundant. "That is a problem that is not receiving enough attention, and I do not think it is a cyclical issue. It is a structural problem. India needs to find another industry which can grow in the same way," Tandon warns. In other words, the boom of the last 30 years may be a poor guide to the next 30. The comfortable formula of scaling up headcount to meet ever-growing overseas tech demand is hitting a wall. Even the US tariff scare - now temporarily defused - is just a bump in the road compared to the tectonic shifts in how technology work gets done.

Infosys's leadership is, unsurprisingly, not waving a red flag just yet. Officially, the tone remains upbeat. "We have built a resilient organisation with a sharp focus on client-centricity and responsiveness to the market," CEO Salil Parekh recently insisted. However, rosy rhetoric cannot hide the fact that resilience alone may not be enough when the very landscape is changing. For investors, the takeaway is to be sceptical of any narrative that this is merely a passing storm. Yes, the halted tariff threats and a potential macro recovery could give a short-term boost, but the broader concerns run deeper. Infosys now forecasts 0-3 per cent revenue growth for FY26 - its weakest outlook since 2009 - and management's hopeful spin cannot obscure that reality.

The path forward calls for more than waiting out a cycle; it demands reinvention. Infosys and its peers will need fresh thinking and a bold strategy to avoid becoming legacy players in a transformed market. That might mean re-skilling tens of thousands of employees, reimagining service lines, or even incubating entirely new business models beyond IT services. India as a whole must also broaden its economic base so that it is not overly reliant on IT outsourcing to fuel growth. The world doesn't need more low-cost coders for last decade's systems; it requires innovative solutions for the future. Investors should welcome a healthy dose of scepticism - and encourage the kind of strategic reboot that can turn this structural challenge into the next opportunity. After all, if Infosys wants to script another decades-long success story, it may first have to admit that the old script has run its course.

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