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A recent report from Nuvama Wealth Management emphasizes that generative AI (Gen AI) presents a significant opportunity for India's IT services sector, opposing the common belief that it poses a threat. While the initial impact of AI may disrupt traditional business processes and billing methods but the long-term advantages are expected to surpass these challenges.
Strengthening the IT Industry
The report suggests that the Indian IT industry is likely to emerge stronger from the disruptions caused by Gen AI. As businesses increasingly adopt AI technologies, there will be a growing demand for essential services such as updating outdated software and preparing data for AI integration. This shift is anticipated to create new revenue streams for Indian IT firms.
Modernizing Legacy Systems
One of the most promising areas for growth lies in the modernization of legacy systems particularly in banking. Many financial institutions still rely on outdated mainframe systems and programming languages like COBOL. Gen AI can facilitate automated updates to these legacy systems by driving significant demand for Indian IT services and establishing a sustainable revenue source.
Global Opportunities
The report highlights that many non-Indian companies, particularly in Europe cannot hire professionals skilled in COBOL. As a result, they are increasingly turning to Indian IT service providers to meet their needs, thereby opening up substantial opportunities for growth in the Indian IT sector.
Upgrading Legacy Code: A Major Opportunity for IT Firms
The recent report has shed light on a critical area of growth for IT companies—the upgradation of legacy code. As businesses prepare their systems to integrate artificial intelligence (AI), updating older software systems becomes essential. This creates a significant opportunity for IT firms to offer specialized services that cater to this need. By modernizing outdated systems, companies can ensure a smoother transition into AI-driven operations.
AI Integration to Open New Avenues for IT Companies
The rise of Generative AI (Gen AI) is expected to lead to the creation of entirely new service lines for Indian IT firms. These new services will focus on AI-based solutions, such as:
- Customer service automation
- Fraud detection systems
- Predictive maintenance
- Knowledge processing
These AI-powered offerings will allow IT companies to deliver higher-value services to their clients, thus boosting their revenue and improving profit margins. By moving beyond traditional service lines, IT companies can diversify their portfolio and meet the growing demand for AI-driven solutions.
The Proven Resilience of Indian IT Companies
The report also emphasized that Indian IT companies have always adapted to changing technological landscapes. Over the years, they have consistently repositioned themselves to continue serving their customers effectively. This ability to evolve and stay relevant has been the cornerstone of their longevity, enabling them to thrive for decades. The report suggests that this adaptability will continue in the face of the AI revolution.
Gen AI: A Tool with Unexplored Potential
Comparing Generative AI to "a hammer looking for a nail," the report suggests that while the full range of its applications is still being discovered, its potential is unquestionable. Gen AI is a powerful tool that offers numerous possibilities, but businesses and IT firms are still exploring the best ways to apply it effectively.
Positive Outlook for FY25: Growth Opportunities in the BFSI Sector
Looking ahead, the report presents a promising picture for Indian IT companies in FY25. The growth will be driven by several factors, including:
- Confidence within the Banking, Financial Services, and Insurance (BFSI) sector.
- Increasing investments in technology.
- Large-scale deal expansions.
As businesses ramp up their technology spending, Indian IT firms are positioned to capitalize on this trend by setting the stage for a strong start to the fiscal year.
With the upgradation of legacy systems and the rise of AI-driven services, Indian IT companies are well-prepared for the next wave of technological advancements. Their ability to adapt combined with a favourable economic outlook, makes them composed for continued growth and success.
Generative AI Boosts Innovation in TCS’s Engineering Research and Design Sector
Generative AI is playing a significant role in speeding up innovation within Tata Consultancy Services (TCS), one of India’s largest IT companies. According to a senior executive at TCS, the company is using this advanced technology to improve its engineering research and design services, an area that is currently experiencing rapid growth in the tech industry.
Faster Product Development Cycles
TCS which claims a prestigious list of clients that includes Rolls Royce, Jaguar Land Rover, and Siemens, has seen notable improvements in its product development processes. Sreenivasa Chakravarti, Vice President of the Internet of Things and Digital Engineering at TCS, explained that generative AI has shortened the time it takes to develop products for their engineering-related clients by up to 20%. This acceleration is expected to continue as the technology evolves further.
Generative AI is mainly being used for code generation, testing, and quality assurance—tasks that Chakravarti referred to as “low-hanging fruits,” or areas where the technology can easily and quickly demonstrate value.
Key Focus on Engineering, Research, and Design
The engineering, research, and design (ER&D) services offered by TCS include technological support for hardware-focused industries. These industries which range from self-driving vehicle manufacturers to sustainability initiatives in sectors like oil and gas, benefit greatly from the advancements driven by AI.
This segment of ER&D services contributes significantly to India's overall tech sector. Currently, it represents one-sixth of the revenue in India’s $254 billion tech industry, a notable portion of the industry’s income.
Fastest-Growing Sector in India’s Tech Industry
According to data from the National Association of Software and Service Companies (NASSCOM), the ER&D space is forecasted to grow by 7.5% during the fiscal year 2024. This makes it the fastest-growing segment within India’s vast tech industry.
Moreover, NASSCOM predicts that the ER&D sector will expand significantly in the coming years. By 2030, it is projected that the sector’s market value could nearly quadruple and reach as much as $170 billion. This rapid growth emphasizes the importance of continued investment in AI technologies like generative AI which will be crucial in maintaining this upward trajectory.
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