US healthcare curbs and AI pivot dent Indian IT's health vertical revenues
Indian IT majors have reported a mixed performance in the June quarter, with the healthcare and life sciences vertical in the Americas underperforming across the board. Factors such as regulatory pressures in the US healthcare system and a shift in client spending towards artificial intelligence (AI) have weighed on revenues.
Wipro's Health vertical, which contributes 14% to its overall revenue, declined 2.6% sequentially in the first quarter. Chief Executive Officer Srini Palia attributed this to flat budgets from US healthcare providers and insurers due to pressures in the US healthcare ecosystem, with many clients reallocating spending towards AI.
Other IT firms also saw declines: Tata Consultancy Services (TCS) reported a 1% sequential drop, and HCL Technologies saw a 0.5% fall. Tech Mahindra was an exception with 2.6% growth in the segment.
The underperformance stems from US government measures to curb healthcare costs, including price caps on critical drugs and tighter Medicare spending. While these steps benefit citizens, they have squeezed margins for healthcare companies, reducing their discretionary spending on IT services. Indian IT firms traditionally handled server maintenance, back-office operations, and compliance for these clients, but now clients are prioritizing AI and automation to cut costs.
“The government crackdown has reduced the discretionary spending power of US health companies and payers. What has made it worse for Indian IT companies is that these US clients have now focused their limited spending ability towards AI and automation to reduce costs,” said an analyst tracking the IT sector at a domestic brokerage.
Sunny Agrawal, head of research at SBICAPS Securities, noted that discretionary spending on experimental projects is declining in favour of AI. The trend has persisted over the past year, with Wipro's healthcare revenue falling sequentially in three of the last four quarters and HCL Tech's segment revenue declining 1.8% in FY26.
However, some executives expect improvement. TCS CEO K Kirthivasan said the vertical could pick up in the second quarter, while Wipro's Palia sees opportunities in AI implementation and compliance.
