Indian IT Industry To Gain From Momentum In The GCC Space, Says Everest Group CEO

Indian IT industry is likely to benefit from the increasing momentum in the GCC (global capability space). Increasingly, more foreign firms are setting up technology captives in the country for insourcing critical technology work. This trend is expected to continue in 2025. Moreover, Indian IT firms may not see much discretionary spend coming back this year though the overall demand environment is expected to improve in the current year.

In an interaction, global IT consultancy firm, Everest Group’s Founder & CEO, Peter Bendor-Samuel told Bizz Buzz that the Indian IT industry may not see much impact on its operations if the H1B visa norms are tightened under the next Trump administration. He is of the opinion that despite political rhetorics, things will not change much in the immigration front as the US doesn’t have enough technology talent to execute IT projects. He also said that large deals, which have shown slowdown in recent quarters, may come back from certain geographies. As far as revenue from artificial intelligence (AI) is concerned, Bendor-Samuel said that despite all the management commentary, it will not be a revenue spinner for IT firms in 2025

A lot of expectations are being built up that 2025 will be a better year for global IT services industry than 2024? What are your views on this aspect? Which factors are likely to support any such uptick?

We believe that the market has hit bottom and there will be a modest but uneven recovery in 2025. We see BFSI (banking, financial services & insurance) and Technology leading the way from an industry perspective. We have seen eight quarters of deceleration in a row for Tech Services, which is close to a record (in the industry). We believe that firms needing to make business adjustments, which will lead to more Tech services spending. We expect a moderate recovery in the modernization spending and an increase in the labour arbitrage cost cutting in Europe. All that said, we do not see a strong recovery this year.

After one and half year of slowdown, Indian IT services players have shown some improvement in their performances during the second quarter of ongoing financial year (Q2 of FY25). Is it the beginning of an uptrend? Can you provide some perspective into this matter?

As noted earlier, we expect the slow and modest recovery to continue and modestly accelerate. However, we see a highly competitive environment with continued downward pressure on price.

What are the key technology areas that will drive the IT industry next year? There are a lot of commentary on artificial intelligence (AI)-related applications and solutions throughout 2024. Do you think, the industry will start seeing revenue translation from AI-related spend among enterprises? Can you provide some perspective in this matter?

We expect the digital modernization movement to modesty rebound with a small sprinkling of AI (artificial intelligence). However, we have yet to see the large compelling use cases for the much-anticipated AI boom. We do not expect that AI-led transformation (projects) will contribute significantly to growth (of IT companies) in 2025.

What are your views with regard to generative AI? While only some IT firms have provided specific revenue generated from GenAI projects, most others are providing number of engagements. Will we start seeing revenue translation from new areas like GenAI for big technology firms and IT services companies?

The market is becoming Gen AI pilot weary and reluctant to continue the torrid pace of POCs (proof of concepts). Increasingly, we see significant discipline being exercised to ensure investments have clear ROI (return on investment). This combined with a paucity of credible large AI use cases will mean that the much-anticipated AI wave is still some years out in the future.

During the second half of 2024, the industry has seen reduced number of mega and large deals. How should one read this? Is it a sign that discretionary spend, especially on digital space, improving? Can you provide some perspective into this matter?

It is clear that the number of mega deals is declining in the US. However, we may see a resurgence in the Europe. We see indications that firms are starting to free up some discretionary spending. However, we expect this to be muted for at least the first two quarters of 2025 and likely modest for the whole of this year.

We have seen increasing number of foreign enterprises opening technology captives (GCCs) in India. Do you think, the momentum in the GCC space to sustain in 2025?

The insourcing GCC (Global Capability Centre) market is on fire and the industry is on a bright spot. We expect the Build, Operate, and Transfer (BOT) market (in the GCC space) to continue its rapid expansion. We believe that a new and potentially larger GCC technology transformation market is starting to emerge in a significant way.

In the US, there is a heated debate around H1B visa programme. As Donald Trump administration is all set to take over from this month, do you think, global IT services industry will see tightening of immigration norms in the near future? Do you think, the Indian IT industry will be impacted adversely if regulations with regard to outsourcing are tightened?

Depending on the level of regulation or tariffs, the IT industry would be adversely affected. However, it is unlikely to reverse the outsourcing which has already occurred as there is not anywhere close to the capacity to absorb the work back into the US. It could create head winds affecting future growth. However, the unintended consequence of the kind of actions such as tariffing outsourcing, would likely create broader industrial and societal pressures which would more than outweigh the negative impacts and could well create conditions which would favour the Indian based IT industry.

A potentially mitigating factor this time is that some technology and large businesses are supporting him (Trump) this time. It is likely that there will be more moderating influences this time around which will go some way in mitigating his action particularly when those actions are not aimed at supporting blue colour workers. Finally, it is impossible for the next administration to significantly affect the existing status quo as there is not enough US-based IT talent to absorb any significant portion of what is currently provided out of India. The most likely scenario is that there is some rhetoric, and a few minor issues such as visa restriction which may push cost up at the margin but do not derail the industry.