Indian IT Titans Struggle as AI Revolution Transforms Global Tech Landscape

Major IT outsourcing companies in India are struggling to keep pace as global investors shift to AI. The move has left Indian traditional tech stocks, particularly software firms like Tata Consultancy Services Ltd. (TCS) and Infosys Ltd., struggling to find their spot. The speedy growth of generative AI has left them miles away, and keeping pace is a challenge.

Most software investors are turning to firms with AI capacities, which are shooting their stock prices and leaving traditional firms with low market interest. The trend is glaring, with AI chipmakers enjoying businesses as they outperform their traditional counterparts.

Although some Indian firms like Tata Elxsi and Oracle Financial Services Software have begun incorporating AI into their operations, their efforts are still below those of their competitors. The Indian AI market must grow to compete with the established countries to survive. Otherwise, it will remain to reckon its glory days.

Lagging in AI Development

Compared to developed countries, or even China, Indian software giants are lagging in generative AI. Globally, Microsoft Corp. and Alphabet Inc. are driving the competition by putting more money into cloud technologies and language models. These moves further alienate Indian firms and make them appear very outdated.

According to Deven Choksey, managing director of DRChoksey FinServ Pvt, traditional software companies are experiencing a significant transition and are slow to adjust. However, their transition pace risks their earnings and valuation since they can’t meet the current software demands. He notes that the business model and the market have rapidly evolved, locking Indian firms out of the lucrative market.  

Choksey highlights the need for Indian Firms to embrace AI and develop software-as-a-service solutions to remain relevant and competitive.

Economic Uncertainty and Slowing Growth

Beyond the AI global market, sentiments such as economic uncertainties are affecting Indian IT firms. Currently, the global spending power of most clients has reduced due to the collapse of economies of different countries.

Notable firms like TCS recently posted their slowest annual sales growth in 36 months. Another firm, Infosys, predicts a smaller revenue growth of 1% to 3% for the fiscal year ending March 2025. Although AI announcements seem positive, the profits from AI-related projects do not match the hype yet. For example, the TCS AI project raised only $900 million out of the total $30 billion raised by the company.