India’s $250 billion IT services sector, the world’s largest outsourcing destination, faces a growing challenge: its heavy dependence on the Americas. For most of the country’s top software exporters, North America accounts for around half of revenues, while Europe adds another third.
That leaves little room for cushioning when shocks hit.
Indian IT companies have marginally reduced their exposure to the Americas in Q1 2026 compared to last year. However, the region continues to remain their largest and most critical revenue driver, underscoring sustained dependency despite diversification effort
Even as firms look to Asia-Pacific for growth, the Americas still account for over half of revenues for most players. This highlights both the opportunities and vulnerabilities tied to the US market.
Any adverse development in the North American region tends to impact Indian IT, said Ananya Roy, founder of Credibull Capital. “Take for instance, the collapse of small banks in the US. US BFSI’s IT spends crashed in the months which followed and Indian IT players concentrated on US BFSI had suffered as a result.”
Roy added that macro headwinds are compounding the problem. “The US GDP growth clocked 2.9% in 2023, it is expected to slow down to 1.7% in 2025. The Euro area is expected to post sub-1% growth. With geopolitical and economic uncertainty, the long-term prospects for these regions look uncertain as well. IT spends in these regions seem to have plateaued.”
A Gradual Diversification
There are signs of change. “Over the years, Indian IT’s exposure to North America has declined,” Roy said, mentioning a reduction of about 10% in overall business coming from North America.
“At the same time, exposure to other regions (including India itself) has increased. The numbers prove that Indian IT has been successfully diversifying into other regions. Considering the recent bout of policy uncertainty, I am sure the urgency towards diversifying would have increased further,” she added.
However, Chokkalingam G, founder of Equinomics Research, finds the diversification slow and uneven. “Combined GDP of Southeast Asian countries will not be even one-fourth or one-fifth of America. So the corporate world is much bigger in Europe and America. They only need IT. Southeast Asian economies cannot help to mitigate the risk coming from the developed world,” he opined.
Alternatives are limited, according to Chokkalingam, who said that only amicable trade between India and the US can resolve this quagmire. He noted that annual growth in IT exports had slowed down to 2–4% in dollar terms, down from 50–60% in the 1990s.
The AI Shake-up
Artificial intelligence (AI), once seen as an opportunity, has emerged as both a disruptor and a catalyst. “With GCCs and mid-tier IT players leveraging AI more extensively and passing on the cost-benefits to clients, clients have started asking even the larger players to step up,” Roy said.
Chokkalingam agreed AI is reshaping the economics of the sector, but in ways that also threaten demand. “The purpose of AI is to cut down the human cost, which is happening now. It reduces the cost of the base level of IT services. That is also slowly emerging as a threat,” he said.
Capital Allocation Questions
At the same time, industry heavyweights have preferred buybacks to aggressive investment in innovation. Infosys and others have returned billions to shareholders.
“Financially, it is sustainable,” said Chokkalingam. “But it also shows that you are not deploying that money for CapEx and expanding the business or IT service business. When the IT service industry growth outlook is not very robust, they should use it for acquiring mid-sized IT companies… or diversification into IT-enabled services.”
Roy flagged the lack of research spending. “India Inc.’s R&D expenses as a percentage of revenues is less than 1%, and lags significantly behind other economies. Even more alarming is the fact that in India, IT does not feature among the sectors with the highest R&D spending. For a sector that is at a risk of being rendered irrelevant, innovation is critical.”
Green Shoots
Still, some see opportunities ahead.
Pareekh Jain, founder of EIIRTrend, an information platform focusing on engineering, IoT, Industry 4.0, and R&D, said Indian IT players are slowly aligning with the government’s broader push to diversify exports.
“A few years back, we wrote this note on $50 billion IT services opportunities in Japan, France, Korea. This is even more relevant now,” he said in a Linkedin Post. “In the last couple of years, one IT service provider has had a 30% CAGR growth primarily due to Japan and South Korea.”
For Jain, the lesson is that while the Americas will remain the backbone, new geographies can fuel incremental growth. “The time has come for the Indian providers to strategise this opportunity,” he said.
For now, the chart tells the story: Indian IT’s fortunes remain tied to the Americas. Whether diversification and AI adoption can tilt that balance will decide how resilient the industry is in the years to come.
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