Tariff Wars May Hit BFSI Tech Spending, Slowing Indian IT’s Growth

The United States' tariff wars with China, Canada and Mexico are likely to impact tech spending in the banking, financial services and insurance sector, which in-turn could hinder the recovery in businesses of Indian information technology firms, analysts said.

US President Donald Trump has levied 25% tariffs on goods from Mexico and Canada, along with a 20% tariff on Chinese goods. He has also indicated at levying reciprocal tariffs on India from April.

China, in retaliation to the Trump administration's fresh move, has counter-imposed 10-15% tariffs on certain American imports. Canada is also implementing 25% tariffs on US imports, and Mexico is expected to unveil similar measures on Sunday. 

“These tariff wars will lead to high interest rates which will delay rate cuts, and if inflation remains elevated it will be detrimental to the banking sector, which is the highest spender on IT services,” said Sumit Pokharna, vice president at Kotak Securities Ltd.

India's major IT players' revenue from the BFSI vertical is projected to grow at 1.4% in fiscal year 2024-25, compared to a deceleration of 1.2% in fiscal 2023-24, according to CLSA. This rebound could be potentially delayed, as trade wars are creating uncertainty for businesses, and affecting the demand environment for IT companies, as per analysts.

Pareekh Jain, chief executive officer of Pareekh Consulting, said, “Now, there is uncertainty with the tariffs and its impact on inflation. The BFSI vertical might cut some tech spending. We will have to see if there will be revision to their forecasts, and how the vertical’s recovery might play out differently now."

The impact will be seen in a lag effect in fiscal 2026 as new deal wins and orderbook might come under the cloud. The current orderbook will hold good in the next two quarters for the companies, he added.

Reacting to the impact of tariffs, Federal Bank Chief Financial Officer Venkatraman Venkateswaran, reportedly said, "We have to wait and see. Some sectors will be affected more than others. Tariffs will have some impact on pharma, auto and textile sectors. At this moment, IT services would be less impacted. I think short-term gyrations do happen. One has to look at it from medium-to-long-term perspective.”

The BFSI sector, a major revenue contributor for IT companies, experienced a decline in fiscal 2023 but showed signs of recovery in fiscal 2024 due to stabilising macroeconomic conditions and prospects of rate cuts by the US Federal Reserve. 

After releasing the recent third-quarter results, Infosys Chief Executive Officer Salil Parekh had noted out that discretionary spending in the US, along with spending in the financial services sector in the UK, is showing signs of improvement. Wipro CEO Srini Pallia also suggested that discretionary spending in the BFSI vertical is coming back.

However, the discretionary spending might now be affected, according to analysts. 

“Discretionary spending is expected to be impacted in Q4, with downside risks ahead. Increased costs, including higher tariffs, will reduce demand and force enterprises to cut discretionary tech spending. This is already reflected in IT stocks,” said Piyush Pandey, lead analyst at Centrum India. 

Analysts quoted above also opine that while the effect will be first seen in the BFSI vertical, other verticals including retail, high tech and others will also see a similar impact if the situation persists.

GCC Growth Also A Potential Casualty Of Trade Wars

Global Capability Centres, or GCCs, which have been a bright spot in the tech landscape, also stand the risk of slow growth as the parent units in the western economies delay decision making due to macroeconomic uncertainties caused by the tariff wars, as per analysts. 

Gaurav Parab, principal research analyst at NelsonHall, said, “In the long term, GCCs will remain the favoured cost management lever for enterprises. But in the near term, expect delays in decision-making towards setting up new GCCs.” 

With the ongoing uncertainty around tariffs, and shifting commentary from the US administration, American manufacturing, retail, BFSI will be first impacted before cost pressures spread to other industries if the situation continues to drag on, he added. 

The recent Economic Survey 2025 had underscored that the number of GCCs in India has grown from approximately 1,430 in fiscal 2019 to over 1,700 in fiscal 2024.  As of March 31, 2024, GCCs in India employed nearly 1.9 million professionals.