Gen AI to Boost Indian IT Sector with New Market Opportunities

According to a report by Nuvama, enterprise adoption of Gen AI is still evolving, but the long-term outlook for Indian IT companies remains positive. The report said, "It maintains that the Indian IT Services industry will come out stronger from the Gen AI disruption, with a net increase in its TAM, just like the earlier disruptions."

The report added that while the pace of technological change may create short-term uncertainty, the medium- to long-term growth outlook for the sector remains favourable. "We remain positive on the sector from a medium to long-term view; near-term volatility might persist," it noted.

It believes that large enterprises will continue to rely on IT services providers to implement AI solutions at scale. According to the report, "enterprise clients shall have to come to IT services companies for any Gen AI implementation," reinforcing the strategic role of Indian IT firms in the evolving technology landscape.

The transition is expected to follow two distinct adoption tracks: upgrades within existing systems and AI-first deployments in new projects. The report noted that "Brownfield changes are cautious and phased; Greenfield projects adopt latest AI-enabled architectures from the start."

In the near term, companies are experimenting with AI capabilities through pilot projects. "Enterprises are currently testing Gen AI through PoCs and selectively injecting capabilities into ongoing projects," the report said, while adding that long-term outsourcing contracts may slow rapid replacement of legacy systems.

However, AI-led services are likely to command higher value. The report noted that new AI capabilities could attract "higher billing rates (~30-40% delta for certain new skills)," even as some traditional full-time employee (FTE)-based revenue streams face pressure.

Productivity gains from AI adoption are already becoming visible. According to the report, "Gen AI and agentic AI deployments are now delivering ~15-18% improvement on average with some cases reaching ~30-35% efficiency gains."

Despite concerns around automation, the sector is unlikely to see large-scale job losses. Instead, the report said organisations are prioritising workforce transformation. "Rather than significant job losses, the industry is likely to experience role evolution and workforce reskilling," it noted.

The study also highlighted that global AI platform providers will continue to rely on IT services firms for enterprise deployments. "While platform companies... control core AI platforms, IT services firms remain essential partners for integration, customisation and enterprise deployment," the report added.

The report says the next phase of AI adoption will reinforce the relevance of Indian IT services companies as enterprises seek partners capable of integrating AI with complex legacy systems and large-scale enterprise workflows.

- ANI