There is a general atmosphere of cautious optimism as far as demand is concerned and a keen interest around the transformative power of generative artificial intelligence (Gen AI), according to the top honchos of TCS, Infosys, Wipro, HCLTech, and Cognizant. However, large scale adoption of the nascent technology of Gen AI is yet to be seen, said chief executive officers of the top IT companies while speaking to Moneycontrol at the recently concluded World Economic Forum in Davos, Switzerland.
The broad consensus that green shoots are perceivable on the horizon by the who’s-who of the IT world assumes significance as these companies have struggled in the past couple of quarters with tepid demand leading to muted quarterly performance. Macroeconomic uncertainty in their key markets and the fear of recession had led clients to put a cap on IT and discretionary spending.
“I definitely see signs of green shoot,” said Rishad Premji, Executive Chairman, Wipro, further saying, “I want to be sort of sensitive that it's green shoots… (and) as I look out over the last few weeks, certainly things seem to be opening up a little bit more.”
For October-December, the IT services company reported a fall in net profit, which is the fourth consecutive quarter of fall in profits.
India’s largest IT company, Tata Consultancy Services’ Chief Executive Officer and Managing Director (MD) K Krithivasan said he sees optimism and clients wanting to do more. Asked about a timeline on when discretionary spending would return, Krithivasan said although it's too early to tell but “sometimes when you're not having a bad news is good news.”
He further said the company would more or less have a clear view of client’s annual technology budgets by the middle of the January-March quarter. “Budget is no longer that sacrosanct… as the customers see more opportunity, they are willing to recalibrate the budget, invest more or dial down,” Krithivasan said, while speaking to Moneycontrol on January 17.
Clients usually prepare their annual tech budgets during the start of the year, which is indicative of the change in spending when compared to the previous year.
Initial calculations suggest that budgets have remained the same as last year, Krithivasan said.
HCLTech’s CEO and MD C Vijayakumar also joined in unison, saying he sees a sense of optimism on a number of areas. He said Davos 2024 seems to be filled with technology conversations, more than any other year that he has attended so far.
“Everybody is navigating a phase of uncertainty and change at the same time,” said Cognizant’s Chief Executive Officer Ravi Kumar S. “In the last 40-50 years, only very few times, people have navigated periods of change and uncertainty together.”
Ravi Kumar said clients are looking at more cost-out deals, which is another broader trend the IT industry has been witnessing. The savings thus generated, he said, will be deployed for integrating AI into enterprise landscapes.
Gen AI
In the gathering of business leaders and other prominent personalities in the Alps, the tech titans were seen sharing a blend of enthusiasm for Gen AI, and also being cautiously optimistic for it.
Generative AI refers to a class of AI models and systems that are designed to generate content, such as text, images, audio, or even video, similar to what a human might create, relying on learned patterns from extensive data rather than explicit programming.
India’s second-largest IT company Infosys said clients are charged up about Gen AI and the type of change that it can make for their businesses.
However, the company did not see any change in actual buying in Q3, CEO and MD Salil Parekh said while speaking to Moneycontrol at the World Economic Forum in Davos on January 18.
“There are some use cases, which are very significant, huge benefits that they can get,” Parekh said. Adding that there was a lot of focus on cost, efficiency, and automation programmes in the December quarter.
Parekh said there are some use-cases in generative AI where the benefits are incredible such as customer service, software development, and knowledge areas. “My sense is, as the economic environment also improves, people will look say let's start big programs on that,” he said.
“Generative AI is a fundamental change in technology and we are fortunate that we are in somewhat of a leadership position,” Parekh said.
If Infosys believes it is in a leadership position, HCLTech says it is playing a very important role in navigating through the uncertainties of a client’s journey in adopting of Gen AI. “I think there is optimism on what the technology (Gen AI) can do, but there is also a lot of uncertainties and the associated risks with some of the adoption of some of the technologies,” said Vijayakumar. “So I think that's driving a little bit of caution… So there is cautious optimism.”
But what's driving this? Vijayakumar said multiple factors are at play here, “but the way they translate to clients is they need to get more efficient, they need to reduce costs, they need to bring in hyper-automation.”
However, IT companies face another challenge while transitioning prototypes into production-grade work. “When you actually apply AI to consumer-grade work, it's relatively easy. When you apply to enterprise grade work, it is hard,” said Cognizant’s Ravi Kumar.’
Nonetheless, all eyes will be on when demand bounces back and the fructification of generative AI into meaningful revenue, going forward.
Also read: Wipro, Infosys, Cognizant CEOs shrug off poaching concerns
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