Shrinking IT Deals Hit Hard by Trump’s Tariff War:

Escalating concern of a recession in the United States, which is the biggest market for Indian IT companies, has put a great deal of strain on the US IT firms as they battle a sluggish pace in signing new deals, more turbulence is expected as a result of President Donald Trump’s tariff war. As the Everest Group that was accessed by Moneycontrol states, The number of contracts that are open for renewal has been on a downward trend, dropping from 1,374 in 2023 to a predicted 1,226 in 2024 and further declining in 2025.

Dollars 700 million contracts that are up for renewal in 2025 include the annual contracts of Wipro from, It Metro Group in the Indian wholesale segment that has a turn over of 1.5 billion per month in Europe.

Experts have said that a few companies might prefer a series of short term rollover contracts rather than entering into a large multiservice contract for several years.

“Clients will first adapt to the conditions of a new client before signing on bigger renewal contracts that will further boost the firm’s revenues,” noted Pareekh Jain, who is the founder and CEO of consulting firm EIIRTrend.

These estimates by the group are indicative, not fully complete, still lacking some details, nevertheless they have offered a glimpse of the overall market trends.

There is something visibly wrong as concerns are emerging about a possible economic contraction ever since Trump did not dismiss the idea of a recession owing to his trade tariffs which are facing opposition from America’s largest trading partners.

This is a complete mess, both on the domestic and international front. Nasdaq is at its lowest point along with S&P 500, which saw a drop in value as well, since September 2024.

In India, the Nifty IT index has decreased nearly 16% so far this year, which isn't great at all.

That is not favorable for India's IT sector, estimated at $283 billion, which recently suffered through a downturn before recovering in Q3FY25, due to the strongest rebound in the last 18 months.

Evolving Deal Patterns: Contract Structures are Changing

There is a noticeable shift in deal patterns. Shorter-term contracts are becoming more commonplace with new signings. These shifts allow companies to depart or change direction more easily when expectations are not met, or mid-term when new technologies such as AI or cloud computing are developed.

“Through 2023 and 2024, the number of big or so-called mega deals awarded was increasing, which means there will be fewer deals available for renewal in 2025,” said Julian Herbert, vice president at Everest Group.

There was a noticeable change in the largest IT deals, with each being worth $250 million to $500 million and occurring over a time period of 3 to 6 years. In 2023, there were 99 and in 2024 there were 329, with 31 currently having been signed in January 2025.

Dominant still are the smaller deals, those which are signed for under $100 million and for a duration shorter than one year. In 2023 alone there were 788 signed, with a little over 900 over 2024, and 42 in January of 2025.

“Gaurav Karnaney, Senior Manager at the Everest Group, said, “Large deals in Q4 2024 declined by 57 percent compared to Q4 2023, with a reduction in $1 billion plus and $500 million plus contracts.” The remaining other half of the market was composed with the multitude of deals under $50 million.

When K Krithivasan, Chief Executive Officer and Managing Director at Tata Consultancy Services, was interviewed, he stated, “We noticed a significant drop in the cycle for closing deals during the December quarter compared to other quarters.” They along with HCLTech and Wipro seem to share this viewpoint.

Aparna Iyer, Chief Financial Officer of Wipro, indicated that they are noticing strong growth in the realm of the smaller and mid sized deals after expecting further growth in profit for Q3 earnings so surprising outpacing expectations.

The volume for mid and smaller deals ticket increased a lot in the third quarter and as a result, Iyer stated that our annual contract value (ACV) came up significantly after many quarters in the post-earnings call. Impact on workforce As companies begin to adjust their execution models to shrink these deal sizes, there is also an impact on the workforce. In IT services, the attrition rate has gradually increased to around 14-15 percent over the last few quarters. Mid-shifting contract patterns, sub contracting habits and headcount plans are also being scrutinized as these firms try to navigate through the new paradigm shift. Given the lack of large deals available, combined with a slower than willing renewal cycle, IT service firms will need to change growth strategies in what is an increasingly more challenging global business environment. Piyush Pandey, who is the SVP - Institutional Equity Research (Lead Analyst) at the brokerage Centrum added that renewals in the US probably will take longer because of the uncertainty in policy and further went on to explain how companies could sit back on making big decisions until the market conditions improve.