Indian IT firms must provide clarity on GenAI-led growth

The recently announced Q3 results of Accenture indicate the growing market for generative AI across the world. Last week, global IT & consulting major Accenture said that it has reached $2 billion deal bookings in the GenAI space in the first three quarters. Importantly, the revenue received touched $500 million in the first three quarters. Commentary from Accenture management was also encouraging as its CEO Julie Sweet said that GenAI deals compensated the loss of small deals in the third quarter ended May. Notably, the global IT industry is going through a slump with enterprises focussing on cost savings than going about new initiatives. This has led to a significant fall in small digital deals from clients. Those companies with high digital pie have been impacted owing to such a fall. Accenture has indicated that its fall in digital deals have been offset by small GenAI deals, which augurs well for the industry as a whole. Firstly, Accenture is indicating that GenAI-led projects are no longer limited to PoCs (proof of concepts) as they were translating into revenues. Secondly, it is a sign that small deals are coming in the form of GenAI-powered projects. On that count, the industry can rely on GenAI projects to make good the losses suffered because of small digital projects.

Indian IT industry is betting big on GenAI since its advent. Most IT firms, including big and mid-tier companies, are upskilling their employees on a war-footing. They are also integrating GenAI solutions into all their products and activities. Despite these efforts, most firms, except for TCS, have not been able to give the revenue translations from GenAI projects. While most companies have highlighted their GenAI engagements, they have not provided exact amount of deal bookings so far. Analysts opine that many of such projects are still in an experimental phase and the companies are not sure whether these will bring revenues for them.

Against this backdrop, all eyes will be on the Q1 results of IT firms, which will be announced next month. Investors are keen to understand whether like Accenture, Indian IT firms will provide their revenue translation from GenAI projects. Secondly, some clarity on the type of engagements and whether this is cannibalizsng their revenue from other projects will be keenly watched in the coming quarters. Many analysts point out that GenAI can improve productivity and reduce the need for human resources. This can contradict the existing business model followed by Indian IT firms, which currently bill a client on the number of human resources used in a project. So, if GenAI leads to use of lesser number of resources, this can disrupt the existing business model of the industry.

Hence, the management of Indian IT companies should provide some clarity on this aspect. Overall, GenAI throws open many opportunities but it has the potential of creating disruptions in the way the current business model works. In the given circumstances, clarity from IT firms is essential for consolidating investor confidence.