GenAI-led projects gain traction amid slowdown

Though the overall budget has not increased, allocation towards GenAI has increased. Therefore, budget for GenAI is increasing as some portion of investment in the matured technology areas is getting diverted into this new technology domain -- Pareekh Jain, IT outsourcing advisor, & Founder of Pareekh Consulting, tells Bizz Buzz

Focus Shift

• Clients diverting funds from old technology domains to GenAI
• This is happening despite status quo in IT budgets for this year
• Uptick in project delivery seen owing to budget allocation

Bengaluru: IT industry is witnessing a greater allocation of funds towards GenerativeAI-related projects though the overall IT spend remains at the same level as compared to last year. According to experts, IT budgets for 2024 remains more or less at the same level that of last year though allocation towards some new technology areas has increased.

“Though the overall budget has not increased, allocation towards GenAI has increased. Every company wants to invest in the GenAI space. Therefore, budget for GenAI is increasing as some portion of investment in the matured technology areas is getting diverted into this new technology domain,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told Bizz Buzz.

He said that due to budget allocation, some projects have seen faster execution, though this is yet to be broad-based.

“New budgets have come for CY24. Some projects have started moving after the budget allocation. But things have not moved substantially as budgets are more or less the same. Clients are waiting for more clarity post the proposed interest rate cuts (by the US Federal Reserve),” Jain added.

According to sources in the know, though there is a slight uptick in the project execution because of budgetary allocation, guidance of all global companies shows that 2024 may not see strong revival in the demand environment.

For 2024, global IT companies have guided for low revenue growth rates, indicating things may not improve much as compared to 2023. For example, Accenture’s Q2 guidance of negative two per cent to two per cent in local currency terms, indicated no positive impact of the US Federal Reserve’s likely reduction of interest rate cuts on demand.

Similarly, Cognizant has guided for a total revenue in the range of $19 billion - $19.8 billion, a decline of 1.8 per cent to growth of 2.2 per cent in 2024.

Indian IT firms are likely to give revenue forecasts for FY25 in April 2024 when they will announce the fourth quarter results.

Meanwhile, some companies have started carving out separate business units in order to cash in the emerging demand. For instance, mid-tier IT firm, Happiest Minds has recently carved out separate GenAI business unit to focus on service offerings. Globally, Accenture is the only IT and consulting firm that has provided some estimates with regard to revenue coming from this new technology area.