Gen AI to unlock a "mammoth incremental opportunity" for Indian IT services: Report

The generative AI provides more opportunity to the Indian IT sector contrary to the believe of being a threat, highlighted a report by Nuvama Wealth Management.

The report noted that although AI technology may initially disrupt the sector, especially in terms of business operations and billing models, the long-term benefits far outweigh the risks.

"We, on the contrary, expect the Indian IT industry to come out stronger from the Gen AI-led disruption. We dig deep into various facets of Gen AI adoption for enterprises and find that Gen AI would create a mammoth incremental opportunity for Indian IT services," said the report.

The report noted that as more enterprises adopt AI, the need for services such as upgradation of legacy code and data readiness for AI integration will increase, offering Indian IT firms new streams of revenue.

The report mentioned one of the most significant opportunities lies in the modernization of legacy systems, particularly core banking systems (CBS). It stated that many financial institutions still use mainframe systems and outdated programming languages like COBOL. Gen AI enables automated code modernization, which will drive a major demand for Indian IT services to upgrade these systems, creating a long-term revenue stream.

"Since most non-Indian (read European) do not have the scale to hire and deploy employees with the ability to code in COBOL (not to mention supply crunch)--they have ceded this opportunity to Indian IT Services companies" said the report.

The report specifically highlighted the "upgradation of legacy code" as a key area of opportunity for IT companies as businesses prepare their systems for AI integration.

Gen AI is expected to create new service lines for Indian IT companies, including AI-based customer service, fraud detection, predictive maintenance, and knowledge processing. These AI-driven solutions will allow IT firms to offer higher-value services to clients, boosting revenue and profit margins.

"Indian IT companies have always repositioned themselves to continue to do what they do best--service customers. That has provided them with the longevity they have commanded for multiple decades now. We do not see that changing this time as well" the report added.

Comparing Gen AI to "a hammer looking for a nail," the report suggested that the technology's applications are still being discovered, but its potential is undeniable.

Looking ahead, the report forecasts a strong start to FY25 for Indian IT companies, with growth driven by an optimistic outlook for the Banking, Financial Services, and Insurance (BFSI) sector, increasing technology spending, and large deal ramp-ups.