Indian IT poised for revival amid challenges
NEW DELHI, INDIA — The Indian IT services industry, after enduring five challenging quarters, is beginning to show signs of recovery.
This follows a period of rapid growth during the pandemic, driven by a surge in digital transformation efforts. However, macroeconomic pressures soon led to a slowdown, with growth plummeting to near zero by late FY24.
Recent financial results from India’s top 12 IT services firms suggest a turning point, with projections for 2024 indicating a promising growth trajectory of 4% to 6%.
Sandeep Nayak and Kushal Raja, partners at Bain & Company in New Delhi and Mumbai, remarked that the “worse is behind” the Indian IT sector. However, both experts added that the pace of recovery will depend on how well companies adapt to evolving market dynamics.
Strategic focus on growth and cost control
Not all sectors are poised for equal growth. Banking sub-sectors like commercial banking and wealth management are expected to lead with 6% to 8% growth in 2024, while manufacturing and property insurance may see spending slow to 2% to 4%.
Opportunities abound in data modernization and artificial intelligence (AI), which could capture up to 30% of incremental IT spending across industries. Additionally, enterprise cloud budgets are set to grow by 4% to 11%, focusing on data migration.
Cost control is crucial as offshoring is expected to grow significantly — by up to five times in 2024 — as companies seek cost efficiencies. Maintenance deal renewals will demand price reductions of over 15%, pushing IT providers to leverage AI-driven cost savings through AIOps.
Nayak and Raja explained that the “playing field is getting leveled.” They added that companies must focus on cost reduction while demonstrating value creation through proactive measures like AI-based cost takeouts.
Leveraging generative AI and GCCs
Generative AI is poised to further transform the industry. By 2024, 20% of large companies are expected to invest up to $50 million in this technology, with IT service providers receiving a significant share. Success will hinge on integrating AI into internal processes and delivering measurable outcomes for clients.
Global capability centers (GCCs) present both competition and collaboration opportunities. Many enterprises plan to expand their GCCs over the next three years. Instead of competing directly, IT services firms can adopt a “transform-and-co-operate” model to help clients optimize these centers.
Staying competitive in a dynamic market
To thrive in this evolving landscape, IT services companies must differentiate themselves by investing in workforce training for generative AI, pursuing strategic acquisitions, and adopting value-based pricing models.
As both experts emphasized, “Companies that stay ahead of the curve by at least 12 months will gain a competitive advantage.”
