Moneycontrol Pro Panorama | AI disrupts revenue outlook of IT companies

Indian IT companies have come a long way.

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The December quarter results' message of a better 2025 is already fading for investors of IT services companies. The NSE IT index has lost about 13 percent so far this calendar year, more than the 7 percent decline in the Nifty 50 index.

The global outlook has turned worse in recent weeks. Tariff hikes by the US and the threat of reciprocal measures by trading partners have increased inflation fears and economic uncertainty.

Recent commentaries by IT companies based outside India indicate no major improvement in growth rates in 2025. There is no broad-based spending recovery. That can mean a third consecutive year of subdued revenue growth rates (less than 10 percent) for large IT companies in FY26.

Adding to growth uncertainty are technological changes. Automation and artificial intelligence (AI) are transforming the way IT companies work and deliver services to customers.

AI coding tools are increasingly taking over software development, leaving humans to do supervisory roles. Cost savings are already visible in customer facing BPO services. Contact centres that have deployed AI technologies have seen operational cost savings of as much as 30 percent, says ISG citing an industry report. Customers are funnelling incremental spends to AI technologies that will help them realise productivity benefits.

The net impact of these technological changes is the deflationary impact on revenue growth rates of IT services companies. Note that IT companies pass on a significant portion of operating cost savings to customers.

Analysts at Kotak Institutional Equities project a cumulative impact of around 2-3 percent on revenue growth rates of IT companies over the next 2-3 years. That is sizeable, given the current single digit revenue growth projected for IT companies in FY26.

The changing technological landscape means companies will have to look beyond traditional technology budgets for business growth. These technology transformations are well articulated by industry leaders at a recent forum, calling for a relook at the way companies do business.

But such changes or adjustments do not happen overnight or without pain. Companies have an unenviable task of retraining their workforce. They have to adopt non-linear business models and climb the value chain.

While this can mean lesser need for new employees in the near term, readers should note that Indian IT companies have navigated several such market changes in the past.

Starting from body-shopping, moving to global business delivery and offshoring, Indian IT companies have come a long way. Their customer-centric approach and ability to embracing new technologies remain as vital as ever. “Willingness to disrupt existing revenue streams with an eye on the larger opportunity would separate winners and losers in each tech cycle,” explain analysts at Kotak.

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