Accenture results showed a drop in billings….for all their talk about future Ai revenues their billings number shows the reality…….if the biggest IT company is not getting orders what to expect from the rest……It might be undervalued…..but need to get some indication whether orders are coming for them otherwise underperformance of IT might continue.
Discl: Personal opinion, no IT positions as of date.
This seems to reflect in how only AI/datacenter and related themes stocks seem to do exceptionally well in an otherwise stagnated market. Shows investors are crazy in private space as well and flock at same place…the only difference is that shrewd ones have among private ones have a solid profitable exit plan on day 0 of investing….
coming to AI and IT services thing….although (i have disclosures in earlier posts that) indian IT is my core holding and have been adding to positions…was viewing an interview of vishal sikka on cnbc yesterday where he mentions that some project where 500 odd team worked 12 hours a day and for around 3 years created something and sometime back he trained AI and it completed that entire project in a single day….it took him several days to come out of that realisation….
what this means to me currently is that for indian IT opportunities will be huge no doubt but the way talent will be used and billed will change dramatically….a gradual shift would be ideal but cant say….
Also i feel they can play a leading role in such shifts but no company would want to do radical changes in way they operate so while they understand & acknowledge the change, they will take it as it comes being ready with action plans on every milestone that hits them….
I maybe wrong in all above….
although i have exited completely out of the IT Trade; my points remain majorly the same :
This doesn’t mean that IT services will benefit.
At gross level this is what is happening:
Software service demand is not reducing. It is slow growth.
But automation and AI is leading to lower headcounts. e.g. 2 engineers being replaced by 1 engineer + 1 AI license(which is about 200 USD)
Now customer knows this maths, they are not going to continue paying for 2 engineers. So topline takes a hit. At best you can maintain your bottom-line.
Market does not like de-growth. Investors would rather buy bonds. Accenture dividend yield is equal to long term bond yields.
Indian IT companies are trading at 50% premium to US IT companies due to scarcity premium and they are huge % of Indian Mcap, not easy to churn for institutions at one go.
Ace investors could see the writing on the wall. He called it more than a year back
There is a tendency to believe that, GCC in India is competition to IT services. It is partially correct in my opinion.
Some of these global companies have their Indian development centers from 1996-97 days, such as Microsoft Hyderabad. Same is case with Adobe, J P Morgan (Malad West/Goregaon East) since 2007-08, Few German companies at NESCO since 2010-11, Few MNC(s) were there in Pune since late 1990(s). Also, Cognizant, Accenture, Capgemini are there in India, since past 2-3 decades. So this competition is old now. It seems that, the scale of competition has increased.
At the same time, most of these Global Companies generally keep premium Innovation, Product R&D, Conceptualization of Next Gen Products, and the Core Software Design and Development platforms in Developed Nations, and Generally use Indian development centers for Tier-2, Tier-3 platforms, products, infrastructure management, testing work. They look at these Indian development centers as Low Cost Development Centers for non-premium Products and Platforms.
I think, the context here is different. While MNC(s) will continue their presence in India, The real revenue limitation for Indian IT services might happen due to AI tools. Will they charge same for the Product / Platform / Service developed using AI and Non AI Tool OR Do they have to give discount for that ? Many companies already use Output Based / Fixed Cost models for charging customer and the impact of person hours is not always 1:1 co-relation.
We have to observe at least next few quarters to understand the impact of AI, on revenue, fixed cost models, margins, PAT and EPS.
well he is maverick in Investing industry. I respect him a lot, hardly any interview of him i miss. But, all this is always true in hindsight, his earlier calls were also about the auto industry due to pressure faced via EVs world over, then he also had a view about Ola and physicswallah etc etc.
All in all he is still a great investor and I respect him a lot, but singling out like this does not work.
Further, people like Rajiv Thakkar have the opposite view if you look at the portfolio construction of PPFAS.
We always need to look the silent evidence that nobody talks about with respect to such hindsight success stories and related stuff.
My views are based on my personal experience.
IT stocks may show some value bounce back once in a while. Chances of it showing degrowth is higher than chances of it getting back to double digit growth.
If bounce back is what one is looking at, it is better played thru Accenture and Cognizant at ~10 PE rather than paying ~15 PE for Indian companies.
I just quoted Samir Arora to give context.
Just a personal opinion…I do not see IT competing with AI for efficiency, cost or rather anything. AI is in itself a part of Technology and this part helps IT services or any business become more efficient and do “more” work & produce “better” results.
So, for a patient company of any industry, AI will be a tool to do better & more work and same is true for IT services….
Btw these days the hype of AI has reached extreme levels that in some school’s curriculum they have introduced subject “AI” in class 5. Add to it, I just listened to lesson where they were talking about using AI in farming, when actually what they are using is “technology”.
In a way, this indicates that, when any term becomes extremely popular, even every school/college/all industries/all banks/all insurance companies will also may claim that they are also using AI!! This is one of the reasons, why an investor should ignore many of such hyped claims and focus only on Core Business of IT services industry.
Check whether they are using AI for :
(1) Customer Satisfaction.
(2) Customer feedback and participation in Sprints/Iterations.
(3) Product Backlog and Sprint Backlog generation.
(4) Iteration and Sprint Planning.
(5) Customer Requirements, Mapping it to User Stories and Prioritization.
(6) Design Framework and Consistency of all the code with this framework.
(7) End to End Product Design, Architecture, Component Design, API framework.
(8) Integration with External API / Cloud / Government API / Income Tax API, and many other Cloud Platforms.
(9) Security Audits.
(10) Security Compliance / Data Compliance / Data Protection Act Compliance, and N number of such compliance checks.
(11) Procurement Planning and Execution.
(12) Selection of right Tool (AI and Non AI Tool) - Can AI be used for this without bias ?
There are so many things / tasks / activities which are beyond Design + Coding + Testing + Go Live. Also, there is massive Legacy Code written in COBOL, C++/UNIX, JAVA which has been in place for 20+ years as well. Can it be replaced by AI Code within few weeks and months ? Is that Risk worth taking for large MNC(s) ?
Once we can look into all these cases and see how much AI can be used, it will give us an idea about how much % of efficiency can be practically gained with AI in next 1 Year or so ?
Same hype was created for SaaS, PaaS, RPA and It was estimated that, Millions of Jobs will become redundant by 2015. We need to check whether that has happened ? What % of people actually lost jobs due to these 3-4 technologies. RPA was supposed to be the game changer for human being, has it lived up to that expectation ?
I think currently some Media and Experts are making some high level statements without probably knowing the Full IT Stack, Day to Day Work and Actual Reality at ground level.
I may be wrong in my analysis. It might happen that, 80% of above things can be done by AI Tools, but it may be more costly or it may generate incorrect logical blocks.
One of my ex-colleagues and a thought leader in this area has explained this issue very well
Could you please elaborate your point here?
Seems like false equivalence. Its just a fundamental technology like internet. Its not a hype, its here to stay.
Agree. But it is more disruptive than internet. Way engines and motors replaced huge amount of routine physical labor, GenAI is replacing routine mental labor (IT industry consumes huge amount of mental labor)
Delving deeper into this discussion:
I’ll be making some tech related analogies, but please take all this with a pinch of salt - I’m not a techie and have no idea what happens behind the doors.
Infosys acquistions:
Fuido Oy was SalesForce consulting partner acquired in 2018.
Simplus, another SalesForce consulting firm acquired in 2020.
TCS acquisitions:
Largest ever acquisition - Coastal Cloud a Salesforce consulting firm - deal closed in 2025.
Wipro:
Rizing Intermediate Holdings in 2022 (SAP Consultant)
IT Service firms have been investing large amounts of money improving capabilities in these software related areas namely: SAP, Salesforce, Service Now, etc. These tools were available to firms, but they needed the help of IT service firms to incorporate and better adapt the ERP to the organisation.
Then as the cloud technology era began, these were the partnerships that followed:
So the risk is not of lack of opportunity, but it’s an execution risk. And execution risk was always present, it’s nothing new.
Some transcripts that explain it better:
What we are assuming when we say AI will replace everything is a doomsday scenario. In such an event - IT service firms will not be only ones affected. This also means that it is probably not a doomsday scenario if one looks at what’s out there as of today.
But if that day ever does come, like the movie Terminator Judgement, I’ll be counting on one of you to find John Connor.
HCL officially announced it’s entry into AI data centres, keeping aside 3500 crores for capex with potential to scale upto 50 MW of capacity. TCS already set aside roughly 4x this money earlier in 2025 for Data centres.
HCL and TCS are the only WITCH companies that have announced entry into data centre business.
HCL also expressed interesting in developing AI models - “While the world’s attention has been captured by the ever larger general purpose models, the real value for enterprises often lies in smaller specialized models trained deeply in on the language, data and workflows of a single industry or a client. These models are faster, more cost efficient and more accurate where it matters and the window to establish leadership here is open."
So this is the follow up on acquisition of Sarvam AI. We may finally see commercially viable AI models from india - but with a very enterprise context specific approach. Models trained with enterprise data only for the enterprise, so that there is no risk of having a data breach.
Personal take: really positive on the model development plans using Sarvam. But the foray into Data centre buildup is just an infrastructure capex at the end of the day, that will reflect patterns of infra boom and bust which seems problematic. If one is negative on the global AI Data centre build up - same applies here as well.
Hopefully the other firms dont get pressurised into building data centres now. IT service firms should behave as IT service firms, your advantage is in being asset light.
There are too many new companies doing it already. They may not be grabbing headlines like LLM. Don’t see it as making any difference to giant IT services companies.
Challenge is that these companies are too big (IT services revenue). Any exciting new thing they do will not move the needle for them.
I think one has to look at the size & purpose of the data center build up by both TCS & now HCL in context & comparison to what US tech giants or data center companies doing & the cash Indian IT firms are generating. For now, this size is very manageable & to me it doesnt look like them transforming to a asset heavy business but rather building an ecosystem for either captive use in future or as a means to capture AI deals at attractive contract terms & captive benefits…..
I have been reading your comments on Indian IT and its very clear you are extremely bearish. I have always respected your views as you are a long term experienced investor but with due respect I feel this is being a little too pessimistic and with short term views. Currently needle may not move but the reset (and along with it the opportunities) that AI brings - is this not in right direction than doing nothing? And who has a right to win over long term? Those companies which currently have neglegible corporate tech relations, no idea of other related technologies, no domain expertise, no capability & experience to handle large transformative projects & challenges they bring or a company which is slowly turning aggressive on this new buzzword tech with all of above & more at hand along with the positive cashflows to utilize?
For those who expect a quick turnaround or immediate payback, Indian IT may not be place currently but those who see them as having an edge to eventually over long term take AI and whatever comes next in their stride may be the ones interested.
Would be good to know your thoughts on why you feel whatever Indian IT would do would not move the needle much over long term. (Short or medium term is not what I am looking at)
Disc: Invested hence highly biased. Transactions recently. Not a buy/sell recommendation. Post only for learning purposes and I can be wrong in all my assessments. Not eligible for any advice.
Sheer size of revenue. It will be cannibalization of existing revenue base rather than growth. By no means I mean these companies will disappear. It is just that they are still being priced for growth which is not visible.
Now think of what was competitive advantage of Indian IT industry. It was labour cost arbitrage. Now lower head count is required, that competitive advantage gets eroded. Why will they not challenged by a company in west or new companies in India.
Reduction in head count means layoffs/stagnation/huge learning curve for existing employees etc. Simply means a demoralized work force.
LLM and Top consulting companies are also stepping into this area. https://openai.com/index/openai-launches-the-deployment-company/
It is just not IT services companies which is getting disrupted. Consulting companies are seeing same trend. Layoffs and restructuring. Ex-McKinsey consultant confirms in the AI Era, Boutiques are Winning
Last but not least, why I shouldn’t be buying Accenture and Cognizant at 10-11 PE rather than Indian IT.
Yes had sen this , I felt this more of a validation of strength of IT services rather than anything else. Gues the way we are wired and taking this challenge for IT services….
Again I see this as an opportunity for Indian IT to move up the value chain like what I mentioned earlier before. IMO the gap of consulting vs implementation will blur to the advantage of shrewd IT services companies who handle it well.
Off late hearing this from many analysts and pms fund managers etc. This option was always there before also as i guess they always traded cheaper to Indian IT and growth difference was also not that huge. So, this argument was always there. Currency depreciation benefit is one reason but guess FII lose that benefit when they take funds back to their country….Resident Indians would not imo….my personal reason would be I know the dna of say a Tata group, HCL group, L&T etc better than say an accenture or cogni….and also the benefit of the Tata and L&T ecosystem even in AI, data centers etc that these companies can derive and personally I am willing to pay the premium for knowing these companies better than US counterparts and the edge they have in Indian ecosystem via their respective groups….
Thanks for your comments, its always good to discuss with you!
Disc: Same as above
Hi, I am new to this forum and I was quite intrigued with the various comments about the Indian night in industry. One of the views expressed by an analyst was that IT industry instead of paying back the shareholders by doing buybacks and hefty dividends they should have invested in frontier models and taking more risks. By being so conservative, they have lost out on the opportunities that these companies could have capitalised on which China is taken on, what would be the views of the forum on this?
