The global information technology (IT) industry, already struggling with a slowdown in deal signings, faces additional uncertainty as U.S. President Donald Trump’s ongoing trade war raises fears of a recession in the United States. The number of IT service contracts up for renewal has been declining year-over-year, raising concerns for Indian IT companies that heavily rely on American clients for business growth.

Declining IT Deal Renewals Pose Challenges

Data from consulting firm Everest Group reveals that 1,374 IT service deals were up for renewal in 2023. This number fell to 1,226 in 2024 and is expected to drop further in 2025. The decline is due to economic uncertainties, evolving client needs, and geopolitical factors, particularly Trump’s trade policies.

One of the largest deals approaching renewal is Metro Group’s $700 million contract with Wipro, which is set to expire in 2025. Industry experts believe that instead of multi-year contracts, many firms may opt for short-term extensions amid economic volatility.

“Uncertainty in the business environment will impact renewal deals. Some clients will prioritize short-term challenges and delay major renewals until they see stability in the market,” said Pareekh Jain, founder and CEO of consulting firm EIIRTrend.

Trade War Fears Rattle Market Sentiment

Investor concerns over a potential U.S. economic slowdown have intensified, particularly after Trump did not rule out the possibility of a recession due to his tariff policies. These trade restrictions, which have been met with strong opposition from major U.S. trading partners, have triggered market turbulence both domestically and globally.

The U.S. stock market has felt the impact, with the tech-heavy Nasdaq and the broader S&P 500 declining to their lowest levels since September 2024. In India, the Nifty IT index has dropped approximately 16% this year, reflecting investor apprehensions about the sector’s future.

This downturn is concerning for India’s $283 billion IT industry, which had just begun recovering in Q3FY25 following an 18-month slowdown. The ongoing volatility threatens to derail that momentum.

Shift in IT Deal Structures

Industry trends indicate that IT service contracts are evolving, with a growing preference for shorter-term agreements. This flexibility allows businesses to adapt to rapidly changing technologies, including advancements in artificial intelligence (AI) and cloud computing.

“The number of big deals or mega deals awarded increased significantly in 2023 and 2024, which means fewer deals will be up for renewal in 2025,” said Julian Herbert, vice president at Everest Group.

Large IT contracts, valued between $250 million and $500 million or spanning 3–6 years, saw a major transformation:

2023: 99 large deals were signed.
2024: 329 large deals were signed.
2025 (as of January): 31 large deals have been signed so far.

However, smaller contracts remain dominant. Deals valued below $100 million or lasting less than a year saw steady growth:

2023: 788 contracts signed.
2024: Over 900 contracts signed.
2025 (as of January): 42 contracts signed.

Decline in Mega Deals Affects IT Firms

Industry data shows a substantial reduction in major contracts:

Q4 2024: Large deals declined by 57% compared to Q4 2023.
Contracts valued at over $1 billion and $500 million+ significantly reduced.
Deals under $50 million now make up the bulk of new agreements.

On January 13, Tata Consultancy Services (TCS) CEO K Krithivasan told Moneycontrol that the company observed a notable reduction in deal cycles, with contract closures taking weeks less than usual in Q3FY25.

Other major IT firms, including HCLTech and Wipro, have echoed similar observations. Wipro’s CFO Aparna Iyer noted that demand for small and medium-sized contracts had significantly increased in Q3FY25, boosting the company’s annual contract value (ACV) after several sluggish quarters.

“Quantum of small and medium-sized deals improved significantly in Q3, thereby increasing our ACV drastically,” Iyer stated during the company’s post-earnings call on January 17.

Impact on IT Workforce and Execution Models

As contract values shrink, IT firms are restructuring their execution models to maintain profitability. Attrition rates in IT services have edged up to 14-15% in recent quarters, and firms are scrutinizing subcontracting and staffing strategies.

With a limited pipeline of mega deals and cautious renewal strategies, IT firms are now focusing on:

Optimizing workforce allocation to enhance efficiency.
Leveraging AI and automation to drive cost savings.
Enhancing client retention efforts to secure longer-term engagements.

Renewals in the U.S. could take longer due to policy uncertainties. Businesses may delay significant commitments until there is more clarity on the macroeconomic landscape, said Piyush Pandey, SVP – Institutional Equity Research at broking firm Centrum.

The Indian IT industry now faces an uphill battle as it navigates declining deal renewals, changing contract structures, and a turbulent global economy.