India’s leading information technology (IT) services companies are undergoing a profound strategic reorientation, marked by an unprecedented surge in acquisition spending that eclipses their traditional emphasis on shareholder returns. The ten largest Indian IT firms have collectively announced acquisitions valued at an astounding $4.3 billion in the current fiscal year, a figure unmatched since the turn of the century. This dramatic shift underscores a critical imperative: rapidly acquiring new competencies in disruptive domains such as artificial intelligence (AI), cloud computing, and specialized digital transformation capabilities to stay competitive in a dynamically evolving global technology landscape.
Historically, Indian IT giants have been lauded for their robust balance sheets and generous shareholder distributions. In the previous fiscal year (FY25), these same top ten companies disbursed an estimated $10.8 billion (approximately ₹96,557 crore) through dividends and share buybacks, while allocating a comparatively modest $1.5 billion (around ₹14,000 crore) to strategic acquisitions. This financial year, however, signals a significant departure from that playbook. The burgeoning M&A activity highlights a growing consensus among industry leaders that organic growth alone is insufficient to keep pace with the accelerating technological cycles and the escalating demand for highly specialized, agile solutions from global enterprises.
The strategic pivot is driven by a stark realization: the "old playbook" of primarily leveraging scale and cost arbitrage is rapidly losing efficacy. As noted by industry experts, the era of building every critical capability in-house is giving way to an urgent need to "buy speed, relevance, and proximity to demand." This translates into targeted acquisitions in high-growth areas like advanced data analytics, cybersecurity, enterprise platforms, and industry-specific AI solutions. The shift is less about traditional "empire building" and more about surgically closing capability gaps to remain relevant and competitive against global rivals and the burgeoning influence of hyperscalers. Firms are recognizing that waiting to develop these advanced capabilities organically risks falling significantly behind in a market where technology cycles are compressing at an unprecedented rate.
Even historically risk-averse industry stalwarts like Tata Consultancy Services (TCS) are embracing this new M&A philosophy. The market leader, which has traditionally favored organic growth and made fewer than a dozen acquisitions since its 2004 public listing, has notably increased its appetite for strategic buyouts. TCS committed $773 million in the previous fiscal year to acquire US-based digital marketing services firm ListEngage and Florida-based Salesforce consulting firm Coastal Cloud. This move aligns with TCS’s stated dual strategy, articulated at its first analyst day in over a decade, to deepen its AI ecosystem partnerships across various platforms and domain leaders while pursuing selective M&A to bolster capabilities in cloud, cybersecurity, digital, enterprise platforms, and advisory services. This pronounced shift from a company renowned for its in-house development prowess signals a broader industry trend.
The aggressive acquisition strategy is not confined to the industry titans. Mid-tier Indian IT firms are also emerging as significant drivers of this M&A wave, demonstrating remarkable agility and strategic foresight. Coforge Ltd., for instance, recently made headlines with its agreement to acquire US software firm Encora in an all-stock deal valued at an estimated $2.39 billion. This landmark transaction represents the largest acquisition ever undertaken by an Indian IT firm, underscoring the mid-tier’s ambition and willingness to invest heavily in future capabilities. In the first nine months of the current fiscal, Coforge has allocated approximately ₹21,450 crore to acquisitions, dwarfing its ₹260 crore in shareholder payouts during the same period. Similarly, Hexaware Technologies Ltd., operating on a January-December fiscal year, invested ₹1,614 crore in acquisitions by September 30, significantly more than the ₹349 crore returned to shareholders. This indicates a clear re-prioritization of capital allocation towards strategic growth initiatives. Other major players, including Infosys Ltd., HCL Technologies, and Wipro Ltd., have also collectively deployed over $1.03 billion to acquire seven companies in areas like data analytics, design engineering, and cloud computing during the first nine months of the current fiscal year.
This pivot towards M&A is intricately linked to the broader challenge of decelerating organic growth across the sector. In the previous fiscal year, the industry’s bellwethers—TCS, Infosys, HCLTech, Wipro, and Tech Mahindra—reported modest revenue growth figures. While TCS, Infosys, and HCLTech managed growth rates of 3.8%, 3.9%, and 4.3% respectively, Wipro and Tech Mahindra experienced full-year revenue declines of 2.7% and 0.2% respectively. This year’s outlook is not expected to be significantly different, with macroeconomic headwinds, cautious client spending, and increasing competition impacting traditional service lines. While mid-tier firms like LTIMindtree Ltd., Coforge Ltd., Persistent Systems Ltd., Mphasis Ltd., and Hexaware Technologies Ltd. generally outpaced their larger counterparts in growth last year, even they are beginning to show signs of slowing demand for certain services. Acquisitions, therefore, offer a vital pathway to infuse new revenue streams, expand market access, diversify service portfolios, and secure crucial talent pools that are otherwise difficult to cultivate internally at the required speed.
The muted investor sentiment surrounding Indian IT stocks further reinforces the strategic shift. Between January 1 and December 26 of the previous year, shares of seven out of India’s ten largest IT services companies experienced declines ranging from 2% to 20%, significantly underperforming the broader BSE Sensex, which surged by 8.83% during the same period. This divergence in performance has led to a re-evaluation of capital allocation strategies. Industry analysts suggest that IT services companies have recognized that a strategy primarily focused on high shareholder payouts is no longer sufficient to enhance investor allure or drive valuations in a market increasingly rewarding innovation and growth potential. The current emphasis on acquisitions is a direct response to this challenge, aimed at accelerating growth and restoring investor confidence by demonstrating a proactive approach to future-proofing their businesses.
However, this aggressive acquisition spree is not without its potential pitfalls. A significant concern is the potential erosion of profitability, particularly given the high cost associated with retaining talent from acquired companies. Integrating diverse corporate cultures, aligning operational frameworks, and ensuring the smooth transition of client relationships present complex challenges that can impact margins in the short to medium term. The competitive landscape for talent, especially in specialized domains like AI and cloud, means that attractive compensation packages and robust retention strategies are crucial, adding pressure to financial performance. Furthermore, all-stock deals, while conserving cash, can lead to dilution for existing shareholders, necessitating a clear articulation of long-term value creation.
Looking ahead, the Indian IT services sector is poised for a transformative period where capital allocation will increasingly prioritize strategic investments over immediate shareholder returns. Industry experts predict that shareholder payouts are likely to moderate in the coming years as companies channel more resources into acquisitions, investments in AI platforms, development of deep domain capabilities, and expansion of nearshore presence. This new phase will see rising capital needs before returns stabilize, marking a maturation of the industry towards a more capital-intensive, capability-driven model. The success of this pivot will hinge on effective integration, strategic foresight in target selection, and the ability to leverage acquired capabilities to deliver higher-value, differentiated services globally, cementing India’s position at the forefront of the digital economy.
