How Re-Baselining and Self-Cannibalisation is Redefining Indian IT Sector in 2025

Introduction

We’ve all the time been happy with our tech giants like TCS, Infosys, Wipro, and many others ruling the worldwide stage? Effectively, in 2025, issues are shifting and persons are worries that what’s in retailer for these firms after tariff imposition by the US. I’ve already written a weblog put up the impression of reciprocal tariff on Indian IT shares, you may learn it right here. On this put up, I’ll discuss particularly about two essential headwinds that our IT firms are at present going through.

There are represented by two fancy-sounding phrases, re-baselining and self-cannibalisation.

Don’t fear in regards to the jargon, I’ll declutter it for you. However what’s attention-grabbing about them is that, if our IT firms can maintain it over time, I feel they’ll make it huge once more. We solely usually say that “our IT firms are going through issues resulting from AI and now resulting from tariffs? However what these issues particularly are, no physique can clearly spell out.

On this weblog put up, I’ll discuss these two points the the IT firms are going through. I’ve tried to assemble as a lot perspective as I can by studying about these two points since previous few days.

So, this put up is not only jargon; it’s about how our IT sector is rewriting its personal story. I feel, it’s a narrative value studying about.

Re-Baselining – The Massive Offers Getting a Makeover

So, what’s re-baselining?

Take for instance that you’re a gross sales man in one in every of out high IT firms. You’ve signed a giant Rs 500 crore deal in 2023 with a shopper within the U.S. to deal with their tech methods. Two years after (in 2025), they name you up and say, “Issues have modified. We want extra AI stuff, and we additionally must downsize the the order valued to Rs 300 crore?”

That’s re-baselining. It’s mainly renegotiating offers that had been locked in earlier. Why it’s finished? As a result of the purchasers are actually saying that the world isn’t the identical anymore and so they want higher costs. The surge in re-baselining of the outdated contracts have gotten extra seen in 2025.

What’s the motive, why purchasers are going for re-baselining?

World economic system is wanting weak and risky. Cause? U.S. tariffs beneath Trump 2.0. Therefore, purchasers overseas are getting extra value acutely aware. They’re not simply asking for cheaper providers; they need smarter deliverables. Now they need to make use of Generative AI (GenAI) that may write code or automate duties for them.

I learn in ET that large-cap IT companies would possibly see development drop to 4.5%–6% in FY26. It’s not even near the ten%–12% development we used to count on from our IT firms.

Although I’ll additionally say that It’s not all gloomy and unhappy, although. Our IT firms are powerful, they’ve survived recessions and US linked issued up to now. They’ve additionally crossed the Y2K panic.

However this re-baselining wave is just too powerful to navigate or our IT firms can hand this too? For certain, it’s forcing them to rethink every thing. They’re again on the drafting board planning easy methods to worth the offers to how briskly they’ll prepare folks in new tech.

I’ll offer you an instance.

A buddy of mine works at a mid-sized IT agency in Bengaluru. Final 12 months, their largest shopper, a retail chain, requested them to redo a five-year contract midway by means of. The shopper needed AI chatbots added to their customer support system, one thing not even within the authentic plan.

My buddy’s crew needed to be taught new instruments, and in some way hold the shopper pleased with out dropping cash. That’s additionally re-baselining in motion. For the IT firms, it’s very irritating.

However the high administration may not bee it solely as a “sob story.” I feel, they’re realising that this new development can be pushing them so as to add a brand new skill-set to their offer-basket.

Self-Cannibalisation (Self Hurt)

Now, let’s discuss self-cannibalisation. I do know it sounds too dramatic however that is one other phrases that’s getting used with respect to the current state of affairs with the IT firms.

In IT phrases, it means our firms are constructing new tech, like AI or cloud options, that’s killing off their outdated, trusty companies. For instance, for a few years up to now Indian IT firms made billions by providing low-cost coding pushed options to US purchasers. These options had been primarily supplied for or fixing outdated methods for international purchasers. That was the bread and butter of our IT firms. However now, out IT firms are solely pushing purchasers to change to shiny new platforms that want fewer folks and fewer time. That is self-cannibalisation, consuming into ones personal enterprise.

Take an organization like Infosys.

They’re pouring cash into AI instruments that may automate total chunks of labor, the stuff that hundreds of engineers used to do manually. Final quarter, I noticed a report saying high IT companies minimize over 16,000 jobs. Why? As a result of an AI can now deal with what 10 coders did earlier than.

It’s a bizarre spot to be in. On one hand, the businesses are happy with the brand new improvements. On the opposite, their very own improvements are shrinking the very mannequin that made these firms well-known.

Self-cannibalisation is like that second once you improve from a Nokia 3310 to a smartphone. You miss the outdated reliability, however you may’t deny the brand new energy. Even within the vehicle trade, the EV wave is like self-cannibalising the ICE engine automobiles.

I used to be chatting with an outdated school buddy who’s now a high supervisor in Wipro. He instructed me how they misplaced a piece of their legacy upkeep enterprise (over the previous 10 years) as a result of they themselves satisfied the shopper to maneuver to a cloud based mostly system. “We’re mainly consuming our personal income to remain forward,” he mentioned, half-laughing, half-worried.

That’s the factor. It’s a gamble, but when we don’t do it, another person will.

The place We Stand in 2025

So, what’s the scene like proper now?

Truthfully, it’s sort of neither worse nor nice.

• On one facet, there’s excellent news. The Nifty IT Index is up 141% within the final 5-Years. However then again, the identical index is down -7.3% in 2025 alone. Hyderabad alone clocked Rs 2.68 lakh crore in IT exports in FY24. Increasingly GenAI offers are popping up in all places. I noticed a stat that mentioned AI-related tasks are doubling in firm pipelines. We’re nonetheless a power to reckon with, little question, however the factor is, the choices are altering from coder-driven options to GenAI based mostly options.
• The flip facet of the coin will not be all rosy. Hiring’s is down by 14% which is the bottom in years. Development isn’t what it was. Smaller IT companies are struggling to maintain up with the large boys who can afford to wager huge on AI. Shoppers have develop into pickier too, they need cutting-edge options however at large reductions. It’s like they need a VW on the worth of a Maruti.

And with the U.S. economic system appearing unpredictable, everybody’s on edge.

I feel what’s fascinating, and a bit scary, is how that is testing the resilience of out IT firms. I feel, our Pharma firms too are going to face the identical warmth quickly.

We’re used to jugaads. We are going to finally discover probably the most worth for cash resolution the purchasers.

Our IT sector has dodged bullets earlier than. They did that in 2008 crash or the H-1B visa situation. However this time, it’s not nearly surviving; it’s about reinventing too.

Re-baselining is forcing our IT firms to renegotiate their place on this planet. Whereas self-cannibalisation is making them rewrite their very own playbook.

Conclusion

So, the place are our IT firms going to go from right here? I’d say it’s time for them to sink-or-swim.

Firms are scrambling to coach folks. 1000’s of staff at TCS are studying AI expertise as we converse. Partnerships with international tech leaders are popping up. There’s a buzz about India turning into an AI hub, not only a back-office hub.

Nevertheless it’s not going to be a straightforward. Smaller gamers would possibly get left behind, and even the giants need to stability these new bets with their outdated commitments.

We’ve acquired the expertise, over 1.5 million IT people. However are we shifting quick sufficient? Can we flip these challenges into a brand new golden period, or will we get caught reminiscing in regards to the glory days?

Re-baselining and self-cannibalisation are the speedy hurdles that our IT firms are going through as of in the present day. I feel, they’re sensible sufficient to search out their place on this altering market. However we as traders, ought to give them time to stabilise themselves. If we predict them to present some excellent news within the subsequent quarter, I don’t suppose it will occurs so quick.

For the second, I’ll proceed to help them for subsequent many quarters. I’m not promoting until heavens begin falling. Furthermore, my publicity to IT will not be too small however restricted. I feel, I can drag it for one more couple of years for certain.