Companies expected to increase Gen AI investments
This, even as analysts and management are divided on how the technology’s rise will impact India’s $254-billion IT services industry.
Two years after the launch of ChatGPT ushered Gen AI into everyday discussions, US-based Information Services Group (ISG) in a September 2024 report said it expects companies globally to spend 6.5% of their total tech spending on Gen AI in 2025.
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According to Connecticut-headquartered ISG, in 2024, the most use cases of GenAI were in customer service functions as part of chatbots and BPO (business process outsourcing). This year will be no different.
GenAI’s prominence among the world’s largest companies comes at a time when enterprises are also flagging the new technology as a risk. Last year, seven IT services firms, including Accenture Plc., Cognizant Technology Solutions Corp., and Capgemini SE, flagged the rise of AI and GenAI tools as a risk factor in their annual reports.
Contrasting opinions
There are contrasting views on whether the new technology would help the country’s IT services industry or prove disruptive. Keith Bachman, an analyst with Toronto-based BMO Capital Markets, wrote in a note dated 12 December that 2025 will see a continued debate on the impact of GenAI on services, particularly related to the supply side and pricing pressure.
“In terms of the supply impact, we think that clients are going to want to benefit from the productivity gains that generative AI provides IT services companies through code and workflow efficiency,” Bachman wrote, adding that that customers may pay less for work being done in less time and/or with fewer people. This indicates a likely impact on hiring by the IT services industry, which is the country’s largest job creator in the organised space.
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“In our opinion, the deflationary forces of generative AI will likely occur at the time of renewals when there is generally pricing pressure on IT services contracts and generative AI could add even more pressure,” he said in the note.
However, a second set of analysts said GenAI will not be deflationary and that cost savings by clients will not result in lesser business for IT service companies.
“In our view, AI technology will serve as a competitive advantage to create new business opportunities and operating models,” said Axis Capital analysts Manik Taneja, Saksham Savernya, and Rohit Thorat in a note dated 10 December.
“We expect the savings gained through leveraging new technologies to be reinvested towards ever more ambitious pursuits of tech innovation for better business,” said the Axis Capital analysts.
Accenture’s Gen AI surge
ChatGPT’s launch in November 2022 propelled Gen AI to corporate boardrooms, with companies worldwide wanting a slice of the pie.
Accenture Plc, the IT world’s largest software services company, said it got about $900 million in revenue from GenAI-related work last fiscal, that is until the 12 months through August 2024. Accenture follows a September-August fiscal year.
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Accenture also said it has secured $1.2 billion in GenAI orders in the quarter ended November 2024, bringing its total orders in the segment to $4.2 billion since September 2023.
Indian firms noncommittal
For now, while some top Indian IT services firms have acknowledged the impact of GenAI on orders, they have not quantified the business opportunity.
For instance, the country’s largest IT services firm, Tata Consultancy Services (TCS), said it has seen a jump in AI projects moving into production.
“Last quarter, we had eight engagements that went into production, and this quarter, we have almost 86 engagements going into production,” said K. Krithivasan, chief executive of TCS in a post- second quarter earnings interaction with analysts on 10 October. “So, we are finding all-round improvement and becoming mainstream.”
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Second-biggest Infosys, too, said GenAI is seeping into its deals. “Any of the large deals that we are looking at, there is a generative AI component to it. Now is it driving the large deal, not in itself, but it is very much a part of that large deal,” the company’s chief executive Salil Parekh said in its Q2 post-earnings conference with analysts on 17 October.
Meanwhile, HCL Technologies chief executive C. Vijayakumar said that he has not seen Gen AI coming into pricing discussions yet. “It’s likely to come into pricing discussions in the next year or so. It’s not that it will not happen,” Vijayakumar noted in a chat with a JP Morgan analyst on 14 October.
To be sure, a new technology takes time to go mainstream. While the internet took a decade and the cloud took about eight years, GenAI’s adoption has been quicker.
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