After coming out of the pandemic-led growth driven by cloud migration and cloud technologies, the technology industry is entering the ‘artificial intelligence’ era. Generative AI tech like ChatGPT, Bard and others have taken over the world since the beginning of 2023. Now the narrative is shifting towards what more can the generative AI tech do to deliver on strong business use cases.
Krishnan Ramanujam, President, Enterprise Growth Group, Tata Consultancy Services (TCS) and Chairman, Nasscom, spoke to Moneycontrol on the sidelines of the Nasscom Technology and Leadership Forum 2023, sharing his outlook on the tech trends that will unlock growth for the IT sector in FY24, nature of deal wins, hiring slowdown, hype around ChatGPT and cloud migration and more. Edited excerpts:
Nasscom’s strategic review numbers are out. And we have added 2.90 lakh jobs in FY23. Do you expect to add on a similar number in the upcoming year in FY24? Or a slowdown, what's your outlook?
As I said, yeah, we added 290,000 jobs in this industry during the current year. But giving a sense of what will likely be next year will be very hard. Firstly, Nasscom as an industry body is not ideally placed for any forecasts. So it's not our job to forecast. But broadly, I will give some trend lines. And from that point of view, I think the next year is likely to be very similar. Clearly, even in FY23, we saw three Covid level growth compared to pre-Covid levels grew stronger, next year is likely to be similar.
We have also started seeing a slowdown in terms of quarter-on-quarter hiring in some of the IT companies. Plus there seems to be a delay in onboarding. So how are you assessing it? And is that in any way a sign that the demand may also have started to slow down for the IT sector?
The last two years have been very atypical. Firstly, because of Covid. In FY21, the numbers went way down for the industry. And in FY22 we saw a very handsome pullback. So these are two very atypical years. And they cannot form the baseline for what is to follow.
So in many ways, FY23 is the first year in which we saw very minimal effects of Covid, and that has to be compared to the pre-Covid level numbers. In FY22, we saw a lot of euphoria and adoption of technology. Meanwhile, the companies prepared for a future where the demand is expected to be very high. Then, when the correction inevitably happens, companies have to do what it's necessary to correct it. Whatever over-investment happened during the previous year, has to be corrected. And that is what is going on. I don't look at it as de-growth or negative sentiment for the industry; it is just the market dynamics playing out and adjusting to calibrate to the demand. Within a few quarters, I believe it will return to normal.
So do you expect a delay in onboarding in FY24?
I think many of our member companies have announced onboarding delays. So, yes.
Since 2023 started, generative AI and ChatGPT seem to be the flavour of the season. As TCS, what is your outlook? How do you expect ChatGPT and similar generative AI technologies impacting the IT services industry? Will this impact the way coding is done and other business aspects?
So, generative AI is definitely a very exciting new piece of technology. It has the potential to completely reset the economics of coding by significantly improving productivity and efficiency. However, the true benefits, both in terms of productivity and transformation, will be realised when ChatGPT, Bard, or any of the generative AI technologies can deliver enterprise use cases. Whether typically there is a business case, there’s an unsolved problem that is solved more efficiently, or something that takes a lot of time, is done much more quickly. When these kinds of use cases begin to be delivered by generative AI technologies, the true transformative power of that technology will be unleashed. Until then, it will be a cool technology with a lot of potential and a lot of us are working to get those enterprise use cases delivered using this.
Are you seeing any use cases and discussions happening at TCS? Are the clients coming up with it and talking about it?
As the chairman of Nasscom, I will not comment on TCS. But, yes, many Nasscom member companies are hard at work, looking for use cases where the generative AI technology can be beneficial.
From an industry perspective, what are the trends you're seeing in terms of the nature of deal wins that you are observing with Nasscom’s members? And in terms of the size of deals are they going to be large this year or is the size going to go down?
I'll highlight a few points. The cloud is massive, and growth in the cloud is still accelerating. And, as businesses become more comfortable with cloud migration, the deal sizes grow larger and larger.
Cloud — it's one thing to migrate on-premise estates to the cloud, but the more transformative benefits come when you can reimagine your business, and delivering those transformational benefits with cloud as the underlying piece of technology where there's a lot more consulting-led transformations, rearchitecting solutions, and reimagining customer experience and things of that nature, those are also driving significant amounts of growth.
In order to do those, there is a lot of application modernization, even rewriting, and refactoring work. And similarly, managing all of this infrastructure mode. Part of your estate is on the cloud, part is on-premise, and a part of it is third party. This kind of hybrid mixed estate management is a fairly complex affair. And that is also a good growth area. So to sum it all up, I would say cloud and associated cybersecurity, hybrid management, application modernization will probably be the top four things that I would call out as the big areas that are driving growth.
Are new cloud migration deals still going big for IT firms, because we have seen that hyperscalers have reported decline in revenues. Obviously, deals in phase 2 of digital transformation deals are still on?
The cloud migrations are continuing apace, I wouldn’t say that the cloud migrations have slowed down. The fact that the hyperscalers have declared results that indicate a slowdown in their signings -- that means the clients are now demanding a business case, and probably the real business case on which the first wave of cloud transformations occurred are probably getting delayed. Customers want to consolidate whatever they've done and ensure that the business benefits from previous cloud investments. The first phase of the cloud migrations are achieved before they want to commit anything further to the second, which means some sense of realism will start getting them.
In many ways, cloud was also a big hype. And now the realism is setting in. True migrations to the cloud to deliver business focus benefits, will now start coming to the fore, which by definition means things will be more realistic, which means a little slower than the stupendous hikes that we saw in the last couple of years.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
