Tensions Between Iran and Israel May Weigh on Indian IT Sector's Growth

India's IT Services Firms Face Fresh Headwinds Amid Middle East Tensions

Key Highlights

• The ongoing war between Israel and Iran, along with retaliatory attacks on prominent Middle Eastern cities, is expected to dampen business sentiment in the region.
• Industry experts warn that heightened geopolitical uncertainty will lead to delayed new projects and reduced discretionary tech spending.
• MENA (Middle East and North Africa) has been a critical strategic geography for technology services giants, accounting for less than 1-2% of total revenue for the entire Indian IT services industry.

Impact on Indian IT Firms

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• TCS, Accenture, and Infosys have a slightly higher exposure to the region at 1.5-2%.
• Tier-1 players such as Tata Consultancy Services and LTM are the most active investors in the region, leveraging long-standing group-level relationships and aligning with government-backed digital and infrastructure programmes.
• Other Tier-1 players, including Infosys, Wipro, and Tech Mahindra, are expanding selectively through local delivery centres, partnerships, and public-sector engagements.

Strategic Positioning of MENA

• MENA has been one of the few regions to actively invest at scale in digital infrastructure, sovereign cloud systems, AI ecosystems, and next-generation public sector transformation.
• Saudi Arabia and the UAE have been positioning themselves as AI and digital hubs, with serious capital behind those ambitions.

Revenue Contribution

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• For most Indian IT companies, MENA is a part of RoW (rest of the world) and currently accounts for less than 1-2% of total revenue.
• The revenue share of emerging markets/RoW has gone up to 19.6% in FY24, up from 15.5% in FY14, and is expected to touch 22.2% in FY30.

Certain Sectors Benefit

• Government sectors and private enterprises will take more interest in defence, cybersecurity, resilience engineering, supply chain reconfiguration, sovereign cloud, and AI-driven operational efficiency.
• These segments are expected to drive demand for the IT industry, especially in a geopolitically charged environment.

Strait of Hormuz to Decide Fate

• The Strait of Hormuz, which holds nearly 20% of the world's oil, is a critical chokepoint.
• Any shutdown of this channel would have a direct impact on oil and energy costs, and the effect would further spill into transport, manufacturing, food production, and utilities.