Indian IT services companies are making a strategic pivot toward AI-focused acquisitions as artificial intelligence fundamentally reshapes their traditional business model. According to Mint, recent acquisitions by Persistent Systems of Germany-based Nagarro and Coforge's $2.35 billion acquisition of California-headquartered data analytics firm Encora in April signal a shift from earlier reluctance to view acquisitions as the fastest route to AI expertise. The deals provide immediate access to specialized talent and AI platforms that would take years to develop internally, as companies face pressure from AI automation that threatens their traditional headcount-based billing model. For Persistent, the Nagarro deal raises Europe's share of revenue to 22% from about 9%.
Indian IT companies are pursuing vastly different acquisition strategies based on their scale and capital flexibility. As reported by Mint, large-cap companies like TCS and Infosys are focusing on smaller, capability-specific deals such as TCS's $700 million acquisition of Coastal Cloud for Salesforce and AI capabilities, and Infosys's $480 million purchase of In-Tech for German automotive engineering R&D. Mid-tier firms are pursuing much larger acquisitions to accelerate growth, with Coforge's Encora deal adding more than 3,100 AI and engineering professionals in Latin America and Wipro's $375 million purchase of Harman Digital Transformation Solutions bringing 5,600 employees with embedded software expertise. The top 10 Indian IT companies spent a combined $4.5 billion on acquisitions in the first half of 2026, reflecting this divergent approach.
AI automation is fundamentally challenging the Indian IT services industry's traditional pricing model, with Jefferies estimating that AI could reduce industry revenue growth by three percentage points over the next five years before growth flattens after 2031. According to Mint, as AI improves productivity, clients are demanding lower prices and fewer billable hours, putting pressure on both revenue growth and profit margins. The country's five largest IT services firms—Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd and Tech Mahindra Ltd—collectively added $1.6 billion in incremental revenue last year. Coforge, Mphasis and Hexaware ended FY26 with revenue of $1.87 billion, $1.8 billion and $1.54 billion respectively, growing 29%, 7% and 8% year-on-year. The shift is already visible in hiring trends, with India's largest IT companies recording a net decline in headcount since 2023.
These acquisitions reflect a broader global trend in technology M&A driven by AI. According to Mint, technology, media and telecommunications deal values rose 48% year-on-year to $472 billion in the first five months of 2026, driven by mega AI deals with transactions above $5 billion accounting for nearly half the value. Unlike Indian IT acquisitions, global deal-making increasingly focuses on securing access to AI stack assets through minority investments, partnerships and long-term commercial agreements rather than full buyouts. Indian companies are paying higher multiples for AI and engineering assets as investors increasingly value businesses with AI capabilities and defensible technology, with the European acquisition strategy offering immediate scale in Europe's mature but fragmented IT services market.
Despite the strategic value of acquisitions, execution risks and market sentiment remain significant concerns. As reported by Mint, Persistent Systems's shares declined after announcing the 140% premium acquisition of Nagarro, with the company securing a €1.4 billion loan from Barclays to fund the deal and refinance existing debt. The integration challenges are evident, with Nagarro operating at a 13.8% adjusted Ebitda margin compared to Persistent's 15.6% Ebitda margin*. The Nifty IT index has fallen sharply in 2026, reflecting cautious market reaction to large acquisitions. Industry leaders acknowledge that acquisitions alone won't solve fundamental pricing model challenges, with HCLTech's CEO C. Vijayakumar emphasizing the need to shift from input-based to output- and outcome-based pricing models to create completely new businesses.
