The Indian IT services industry is currently facing macroeconomic headwinds, brought on mostly by the slowdown globally. What is the outlook for the sector? In this episode of the “State of the Economy” podcast, Haripriya Sureban talks to Kumar Rakesh, Analyst at BNP Paribas, to understand the challenges and potential opportunities for the Indian IT services industry.

In the podcast, Kumar Rakesh explains why the IT industry’s growth has moderated over the past year and how the current downturn is distinct from previous cycles. He also explains the path to recovery.

Kumar also explains how the sector’s growth moderation is different this time. In the past, during economic downturns, companies reduced their investments to address profitability concerns resulting from rising interest rates. He notes that corporations in the US are currently less stressed about interest rate hikes as they have significantly reduced their debt burdens over the last decade.

He notes that manufacturing industries have not cut their IT spending, indicating a decoupling of tech spending from end-market performance. This shift, he adds, shows how IT spending is becoming more strategic and long-term focused.

When asked about specific companies, Kumar highlights that Tata Consultancy Services (TCS) and HCL Technologies are likely to perform well. TCS excels in cost optimisation deals, while HCL’s capabilities in the cloud space position it well to benefit from the ongoing trend of long-term technology investments.

Generative AI’s role in generating revenue is also discussed in the podcast. Kumar explains that enterprises are currently in the exploratory stage, trying to understand how to best utilise generative AI tools. He believes that generative AI could become a meaningful contributor to revenue when companies transition from exploration to implementation.

Related Topics