For IT cos, growth in Europe may only be temporary relief

With demand for information-technology (IT) services in North America still sluggish, Europe has become a source of optimism for Indian companies because it is delivering steady gains over the past two years and continuing to outperform in the latest quarter.

Illustration: Uttam Ghosh

Yet analysts caution a full-scale revival will require a rebound in the United States (US), particularly in manufacturing, retail, and BFSI (banking, financial services, and insurance), because Europe contributes only about a third of the revenues.

Companies like Infosys and Tata Consultancy Services are benefiting from large outsourcing deals, rising research & development (R&D), and increasing cloud and AI (artificial intelligence) adoption by European enterprises.

For example, Infosys’ growth in Europe over the past three years has far surpassed that in North America and the company’s overall growth.

Even in the first quarter of FY26, revenue growth in Europe was up 12.3 per cent, compared to North America at 0.4 per cent, on a constant-currency basis over a year earlier.

“There are consolidation deals we have won in Europe. So that has helped.

“And over time, Europe is also opening up from the outsourcing perspective. That is helping in growth,” Infosys chief financial officer Jayesh Sanghrajka told analysts.

The company is also benefiting from a pipeline of large deals in the continent.

Experts say European enterprises historically invested just a fifth of what US firms allocated to tech R&D.

In emerging areas like AI, private investment in the US outpaced that in Europe by three to four times, contributing to higher costs and slower modernisation across industries.

Nitin Bhatt, partner and technology-sector leader, EY, said IT expenditure in Europe was expected to grow 8-10 per cent in 2025 over the previous year, marking the strongest annual growth since the pandemic.

“The narrative is shifting.

“Over the past few years, European companies have accelerated their R&D investment, with growth rates surpassing those of US firms for the first time in over a decade. Key sectors, such as manufacturing, banking, and public services, are embracing cloud and sustainability-linked initiatives to digitise operations and enhance competitiveness.

“Early adopters, particularly in financial services, have demonstrated the value of offshoring critical functions, leading to the broader acceptance of outsourcing across industries,” added Bhatt.

TCS separates UK revenue from what it earns in continental Europe. UK revenue was up 4 per cent and continental Europe 0.7 per cent, while North America was down 1.8 per cent.

“With the trade uncertainty and the new spending on defence stimulating the economy, Europe has become a more attractive market for Indian firms,” said Peter Bendor-Samuel, founder and executive chairman, Everest group.

Wipro, whose fortunes have moved the other way, has been hit by some of its client-specific problems in the continent.

The company, however, expects to return to trajectory from the third quarter as soon as revenue from the $500 million Phoenix deal kicks in.

“The growth drivers for IT companies in Europe include rising need for cost-optimisation deals to reduce tech spend, technology adoption as European firms aim to build tech capabilities to maintain sovereignty, and reducing dependency on the US.

“Key sectors powering growth are manufacturing in Germany, shipping and logistics in northern Europe, and financial services across the continent.

“Demand is particularly strong in cloud computing, generative AI, digital transformation, and cybersecurity,” said Gaurav Vasu, founder, data intelligence firm UnearthInsights.

Sanghrajka said it would be difficult to ascertain whether Europe would continue growing.

When asked if the geography was only a fall-back option till the larger market gets its mojo back, Bendor-Samuel said: “This looks less like a permanent shift and more like Europe being on a stronger trajectory at this time.”