AI Boost To Top Line Of Indian IT Companies: Here's What Analysts Have To Say

Amid the buzz around artificial intelligence, talks on how it can benefit the top line of Indian information technology companies has gathered steam.

Tech majors have expressed optimism over how Generative AI can be a significant source of revenue in the coming years. But, is that really certain? Well, brokerage firms consider the scenario to be hazy and the road could be bumpy.

"Yes, it is definite that going forward every company will want to adopt AI and see how they can use AI in their organisation, but net-to-net, will it cannibalise into something else, we don't know", said Hiren Ved, director and chief investment officer at Alchemy Capital Management Ltd.

"AI is just an evolution, a technological shift, a nomenclature. Companies do talk about 15% growth from AI, but I ask them if it is cannibalising your other services, or is it a plus-plus," Ved said. AI might create a spurt of tech spending by companies initially, but it remains doubtful if it can drive revenue growth for the IT majors in future, he said.

Sumit Pokharna, vice-president-research at Kotak Securities Ltd., concurred. IT companies will also require relevant skillsets and workforce to develop AI tools, hence increasing the expenses, he said.

"Further, AI in India is at a very nascent stage, and companies currently are just scratching the surface. So, it is more of a buzzword at present," Pokharna said.

"We are currently talking about investment in AI and not monetising on it. Even many Indian IT companies so far are not giving clear numbers or major indications on how much they are earning from Generative AI, so outlook on revenue from AI is very hazy," he said.

According to Dipesh Kumar Mehta, a senior research analyst at Emkay Global Financial Services, no boost in revenue is expected from AI at least in the next 2-3 years. "You will hear a lot of noise around AI than the actual revenue. Plus, there will be challenges on the regulatory and security front," he said.

However, brokerages believe that it is definite that AI can improve efficiency in organisations across sectors and will aid in reducing product costs, which can reflect on bottom line growth.

Mehta said the demand for AI is net positive in the long-term for the top line as well, even though it is doubtful how big the change will be.

On the other hand, companies look extremely optimistic on the adoption of artificial intelligence, which according to them, can translate into strong value growth from Gen AI, going forward.

Tata Consultancy Services Ltd. is expecting a significant boost in revenue in the coming years as AI is a more efficient technology, and that will increase the demand and adoption of IT services in general, said Krishna Mohan, deputy head of AI Cloud at the IT major, on the sidelines of the launch of AI WisdomNext by the company on Friday.

"It depends on how much companies adapt to these technologies, and the promise of adoption of AI is very strong," he said.

Gen AI cuts across services—whether it is application, data, or cloud. So, there is a lot happening which is beneficial, Mohan said.

He expects strong demand for Gen AI from sectors such as manufacturing, retail, financial services and healthcare. "Currently, we are looking at the increase in the pipeline, as that converts into deal wins and hence, an increase in top line, he told NDTV Profit.

TCS AI WisdomNext is India's first platform service, which is meant to integrate multiple AI services onto a single platform. The platform is designed to cut barriers for customers to develop and launch business solutions, allowing for real-time experimentation across vendor, internal, and open-source LLM models, the company said in the press release.

The platform brings AI solutions tailormade for specific industry and purposes on a common platform, also making it convenient for end users to experiment and choose which AI tool works the best for them.

The tech giant's management said that Gen AI is an evolving space, and they have set revenue targets, but they will announce them only once they have been achieved. The product pipeline for Gen AI is expected to improve in the coming quarters, which will help it generate "good" revenue, according to the company.

Tata Consultancy Services, for the first time, said in its latest quarterly results that it has doubled its AI and Gen AI pipeline to $900 million. In a recent interview with Business Standard, Happiest Minds Technologies Ltd. also said they are expecting significant revenue from Gen AI in the next few years.