Is AI a boon or bane for Indian IT companies?

AI might not impact the revenues and profitability of IT companies if they are proactive in using AI and adapt to the latest developments

Artificial Intelligence (AI) in its simplest form refers to the simulation of human intelligence by machines. Generative AI is a branch within AI that focuses on creating or generating new data based on existing patterns and examples which could be in the form of images, videos, texts, and 3D models.

Since the release of ChatGPT, which is an AI-based chatbot developed by OpenAI, a lot of speculation can be seen about AI, potentially replacing some jobs. In fact, as per the latest Microsoft report, 74 per cent of Indians are worried that AI will take their jobs in the future. The fact that AI can generate content that is not distinguishable from human-created output shows a big advancement that could have major effects on the economy.

From an investment standpoint, what can AI alter for the Indian IT sector and its companies?

It has long been observed that innovation always leads to the replacement of human labour with capital. The Indian IT sector is largely service based. A major proportion of revenue of the Indian IT companies comes from the United States- and Europe-based clients who outsource their functions to them. Developments in innovative technologies are often a ‘deflation driver’ as they compete in pricing with the status quo.

Almost every major company is now working on their own in-house development of generative AI. Some examples include US multinational technology company Alphabet and China’s major companies such as Baidu and Alibaba. Does this mean the death knell for Indian IT companies?

An opportunity in the face of adversity

Generative AI is known to be particularly good at the automation of tasks. Hence, it could rather be used to enhance productivity, wherein, the developer can focus on the important parts of the job. A function such as coding is just one part of the process of programming. Prompting the AI to get the desired output is fast becoming a work profile which hints that we could see the emergence of new jobs and occupations that would complement the use of AI.

Indian IT companies are already gearing up for this technological shift, and have started making investments in generative AI. Below are three examples of the developments being done by companies:

Name of Company	Description
Tata Consultancy Services (TCS)	> Announced partnership with Google Cloud to launch TCS Generative AI which would leverage Google Cloud’s generative AI services to design and deploy custom business solutions to clients > Working on AI-powered financial advisory and wealth management solutions for BFSI sector clients > In process of creating an AI-powered virtual fashion designer for retail industry, computer vision for heavy industries and AI-driven streaming data analytics for anomaly detection
Tech Mahindra	> Started ‘Generative AI Studio’ which offers a suite of AI solutions to clients under its AI offerings. This provides enterprises with a user-friendly interface and a range of features to customise their content
Mphasis	> Unveiled its business unit ‘Mphasis.ai’ where it will partner with AWS, and Microsoft Azure while collaborating with specialised market-leading AI platforms through which their clients can gain access to array of patented AI assets and models

Source: BSE filings, and investor concalls of respective companies

As far as the revenues and profitability of IT companies are concerned, AI might not have much of an impact if they are proactive in using AI and of being in terms with the latest developments. It would rather help the companies create more efficient teams that might increase margins in the near term. However, these can be expected to normalise in the longer term. On the revenue side, increased consumer demand because of personalised high-quality AI products is expected to help keep the order pipeline robust.

Data privacy is a challenge

The likelihood of data breaches and unauthorised access to personal information are the key privacy worries associated with AI. Given the volume of data being gathered and processed, there is a chance that it could be misused through hacking, or other security flaws. This is the reason for a lot of organisations not allowing the use of an open-source generative AI platform, and focusing more on creating an in-house platform. The months ahead will give more clarity about developments in tackling privacy and cyber security issues.

Conclusion

Human resource is the most crucial asset for an IT company, and companies in the Indian IT space seem to be embracing the tools. This is a rapidly evolving space where changes are happening every week. Significant hiring in AI-related roles can be expected from the IT companies in the future which would be aimed at increasing productivity and giving more value to clients by using AI. Companies would be actively looking to employ AI and build compelling use cases that will put them ahead of the competition.

(Parimal Ade (Twitter: @AdeParimal) is Founder, and Gaurav Jain (Twitter: @gaurav28jain) is Co-Founder, Investyadnya.in.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.