DAYS AFTER posting a third straight quarter of decline in revenues, Tata Consultancy Services (TCS) announced in early August that it would reduce its workforce by 2% to “future-proof” the company. This means that nearly 12,000 middle- and senior-level executives will be rendered jobless by the end of FY26 at India’s largest IT services firm with a headcount of around 613,000 employees. The move, a harbinger of what lies ahead, has jolted the sector.

Back in 2022, technology adoption accelerated globally, due to the pandemic. And IT firms responded with a hiring spree. India’s Top 3 IT firms recruited more than 70,000 people in FY21. But hiring as well as attrition rates have moderated over the past couple of years. The headcount at TCS rose from 606,331 in Q1FY23 to 613,069 in Q1FY26, while at HCLTech it inched up from 210,966 to 223,151. Attrition, however, dropped from 19.7% to 13.8% at TCS and from 23.8% to 12.8% at HCLTech. Infosys saw its workforce decline from 335,186 to 323,788 over the same period.

In FY25, on the back of slower growth, especially for large firms, and weighed down by global macro uncertainties for FY26, many of them staggered the onboarding of freshers. Yet, the net addition in the overall headcount of the Top 5 firms, barring Infosys and Wipro, surpasses the Covid levels.

Structural shift

The current recalibration also stems from a structural shift in the industry. Muthu Kumaran, operating partner and head of India operations at tech investment platform Recognize, anticipates an AI-driven 360° disruption that will challenge the identity and existence of IT services firms while redefining how they grow, sell, and work. “For the first time, the leadership order is being rewritten. Yesterday’s executives may become tomorrow’s laggards, and new players may rise to redefine the future of IT services.”

A veteran, who has spent nearly 25 years at Cognizant, concurs as he expects the industry’s long-standing, people-centric growth model, built on scaling headcount to drive revenue, fundamentally challenged. A sharp course correction seems imminent, he says. “Companies can no longer rely on selling hours of human effort; they must create value through proprietary AI platforms and low-code automation tools. Contracts are moving to hybrid, AI-augmented models that blend human expertise with automation and digital assistants,” Kumaran explains. Client relationships are switching from trust-based partnerships to outcome-focussed engagements where measurable impact matters.

As a result, companies are now pivoting to talent that understands the technologies of the future. For instance, TCS has announced that it will increase fresher hiring in FY26. In an earnings call in April, chief human resources officer Milind Lakkad outlined how the hiring mix stood in FY25. “The percentage of hires we have in digital is 40%, compared to 17% last year (FY24). So that changes; now 50% of our lateral hires come with high-end skills, including AI/Gen AI,” he had said.

HCLTech, which has delivered industry-leading growth for two consecutive fiscals, is treading a similar path. In the July earnings call, chief people officer Ramachandran Sundararajan said the fresher intake was no longer based on just numbers, but skills and specialisation. It has revisited its compensation plan. “For the regular cadre, the base compensation is ₹4.25 lakh. The specialist or elite category is now 3x higher than the base compensation on the services side. On the software side, it’s upwards of 4x,” he had said.

For companies, the new North Star is clear: right skill sets, a closer scrutiny of existing talent, and a more targeted approach to freshers. “Quality and value contribution have taken precedence over volume,” explains Sunil Chemmankotil, country manager, Adecco India, a workforce solutions provider.

The transition is already underway, but the full impact is still unfolding. Roles that involve repetitive, rules-based tasks and routine infrastructure management are at risk.

Careers of tomorrow

Large IT firms posted moderate growth in Q1FY26. While the profitability outlook hasn’t changed, the growth projection saw a tightening at the lower end of the revenue guidance rather than the upper end. Global uncertainties, project delays, and tariff-related pressures keep the focus of companies on efficiency, vendor consolidation, and AI-led transformation.

According to Quess Corp’s IT staffing CEO Kapil Joshi, high demand for niche skills is driving the attrition between 12% and 18%. And this is prompting firms to focus on retention and skill-based hiring over generic roles. “Hiring is picking up selectively, with fresher intake expected to double this year to over 150,000 graduates, alongside strong demand for specialised roles... Tier II and III cities are emerging as important talent hubs, while flexible staffing and subcontracting are helping firms manage costs and utilisation,” Joshi says, even as he expects IT companies to be cautious while hiring.

The demand for new skills has driven large-scale workforce upskilling and global benchmarking of AI capabilities. IT firms are drawing up retention strategies, enhanced internal mobility programmes, and long-term career development opportunities. Adecco India sees a strong traction in project-led demand, particularly in pharma, BFSI, gaming and entertainment, aviation, retail and manufacturing as employers favour digital-first and skill-adjacent hiring. “Demand for AI/machine learning engineers, data analysts and data engineers, DevOps engineers, cloud and network security engineers, software developers, IT project managers, and business analysts remains strong, with an estimated 20% upswing over the same quarter in FY25,” says Chemmankotil.

With an AI-led transition on track, niche-skilled freshers and cross-trained professionals are the new reality of the IT sector.