IT companies log strong revenue growth outside key North America market

India’s top IT services exporters are seeing revenue growth in parts of Europe and regional markets — the Middle East & Africa (MEA) and India and Asia Pacific (APAC) — outpacing that in the traditional stronghold of North America, which is experiencing flattening demand.

Currently, for most IT services firms, the North American market contributes 50-60% to the total revenue, followed by Europe at around 30%. The regional markets still constitute a small portion of the total revenue pie.

However, “For the last two quarters, the Middle East and Japan have grown faster than Europe. But before the last two quarters, Europe has grown faster than North America for 10 straight quarters,” said Peter Bendor-Samuel, founder and chief executive of research firm Everest Group.


Sumit Pokharna, vice president and an analyst at Kotak Securities, said US clients, especially in BFSI and retail, are sceptical about making discretionary spending because of high inflation and interest rates. Meanwhile, India, the Middle East and the UK are continuing to see investments in technology. And, though margin realisation is relatively lower in such regions, IT services firms are trying to focus wherever they can see potential growth.

For Tata Consultancy Services, India’s largest IT services firm, revenue from the UK, constituting a 16.5% share, rose 10.1% in FY24, while growth in Continental Europe, with a 14.9% share, slowed to 0.7% from 11% in FY23. India and MEA jumped to 20.2% (14.6% in FY23) and 14.4% growth (7.8%), respectively.

On a quarterly basis, TCS’ revenue growth during the January-March period was led by regional markets, which grew 26% year-on-year, with India expanding 37.9% in constant currency terms, followed by MEA at 10.7% and APAC at 5.2%. The deal with state-run Bharat Sanchar Nigam Ltd constituted a large chunk of that growth in India. During the quarter, North America and Europe declined by 2.0% and 2.3%, respectively.

In fact, FY24 saw many deal announcements: TCS partnered with Jaguar Land Rover and Aviva in the UK, besides BSNL in India; Infosys inked deals with Irish food firm Musgrave, Singaporean shipping company Pacific International Lines and Sharjah Islamic Bank, while HCLTech partnered with Australia’s Department of Transport and Planning and Cricket Australia.

Hansa Iyengar, senior analyst for enterprise IT practice at Omdia, said India’s young tech talent pool and its growing economy and government push, including in the Middle East, are fuelling demand for innovative solutions. Europe, meanwhile, is playing the digitalisation catchup game.

In a recent interview with ET, TCS chief K Krithivasan said: “We believe India’s expected growth to be 7-8%, (it) has so many opportunities. If you don't participate in India, then you will be missing out in a big way over a period.”

For Bengaluru-based Infosys, while India revenue shrank over 15%, its Europe and Rest of the World (APAC and MEA) markets reported growth. Cross-city rival Wipro reported lower revenue across regions, but chief financial officer Aparna Iyer said it is seeing a recovery in regions like Switzerland and Southern Europe that grew 1.7% and 1.6% in Q4. Southern Europe, as a sector, expanded 14.6% YoY in FY24, she said. HCLTech, the third largest IT player, is seeing growing demand in Europe and Japan.

India and the other regions have a lot of euphoria in terms of digitalisation and economic growth, unlike the US for now, said Pokharna of Kotak Securities.

However, he believes that given the large deal wins in the US, even if North America resumes growth, these (regional) markets will continue to grow given the smaller base but may not gain as much revenue mix. “The divergence in strong deals and lower growth can only be due to run-off in existing discretionary programmes," Pokharna said.