Indian IT firms are looking for new strategies to drive growth, with AI disruptions and shifting business models calling for reinvestment and innovation
The sector, which heavily relies on its financial services business, is facing a slow growth cycle. Lower discretionary spending and the automation of basic coding tasks through AI are adding pressure on Indian developers to adapt, reported timesofindia.indiatimes.com.
AI and Industry Shifts Prompt Reinvestment
The top five Indian IT firms had free cash flows of nearly $13 billion in the 2023-24 financial year. However, industry experts are questioning whether it’s time for companies to rethink how they use these funds. Ramkumar Ramamoorthy, partner at Catalincs, suggested that IT firms could deploy some of their free cash flow as “risk capital” to capitalize on emerging opportunities in technology. This approach, according to Ramamoorthy, could prevent “techolonization” and enable Indian IT firms to leap into the future rather than stick to old business models.
Namratha Dharshan, chief business leader at ISG, highlighted that the industry is at a crucial inflection point. With the traditional business models no longer sufficient in a rapidly changing technology landscape, IT companies must strike a balance between innovation and meeting shareholder expectations for stable returns.
The Need for Strategic Investments and Global Expansion
Phil Fersht, CEO of HfS Research, echoed these sentiments, urging Indian IT firms to reinvest their cash into expanding their global capabilities. In light of changes in global trade and US administration policies, he stressed that focusing only on short-term shareholder returns could be detrimental in the long run. Fersht also expressed concerns about US industries potentially facing increased tariffs, which could escalate costs and affect work outsourced from the US to India.
While Indian IT companies generated significant free cash flows last year, industry experts believe the sector is undergoing a major transformation, especially with AI disrupting traditional revenue and employment structures
Ramamoorthy proposed that Indian IT firms could use their cash flows as “risk capital,” similar to strategies employed by companies like Alibaba or Tencent. By taking minority stakes in next-gen companies or building India’s infrastructure in AI, cloud, and cybersecurity, Indian IT firms could secure long-term growth.
Ongoing Adaptations in a Changing Landscape
Despite the call for reinvestment, Shriram Subramanian, founder of InGovern, pointed out that Indian IT companies have robust and adaptive business models. These companies are already making strategic investments in innovative tech firms and expanding their portfolios through acquisitions when necessary, ensuring they remain relevant in a rapidly evolving market.
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