Revenue growth for Indian information technology (IT) companies is expected to improve slightly in the next fiscal year, although negative investor perceptions around artificial intelligence (AI) remain a challenge, according to a recent Nomura report. In an interview with CNBC TV18, Abhishek Bhandari, executive director of technology and internet at Nomura, elaborated on the company’s outlook, predicting that dollar revenue growth for large-cap IT companies could accelerate to 4.5% from the current 3% and that mid-caps will continue to outperform large-caps.
Mr. Bhandari mentioned the impact of currency fluctuations and explained the short-term benefits of a weaker rupee. “Typically, a 1% depreciation in the rupee is calculated to improve the IT sector’s margins by about 25-30 basis points,” he said. However, he clarified that this is a temporary benefit as these profits will ultimately be passed on to customers over the long term. For the next financial year, Nomura expects the rupee to average around 89 rupees to the dollar compared to 87.5 rupees this year, which the company expects will improve large-cap returns by nearly 30 basis points.
Bhandari noted that the main pushback from investors centers on the perception that the IT services industry is an “AI loser.” “The big story that’s happening in the technology industry globally is identifying winners and losers… and IT services in general are perceived to be losers in AI because they haven’t really participated in the AI wave so far,” he said. This perception is further exacerbated by revenue deflation due to accelerated discounts that companies are forced to offer to customers.
Nevertheless, Bhandari argued that IT services businesses have historically been premised on, and will ultimately benefit from, technological change. He believes the current cycle is no different, and attributes the delay to the rapid pace of AI innovation. New and better models are constantly emerging, making it difficult for businesses to lock in to a single AI stack, deferring large-scale spending. “This is more of a timing issue. The delay is actually longer than expected because the AI winner has not yet been identified,” Bhandari explained.
Reflecting this evolving situation, Nomura has adopted a more proactive stance towards the sector compared to the previous year. Bhandari highlighted new evidence that changes this view. “We are already seeing evidence of proof-of-concept (POC) projects moving to point solutions, which is typically where AI spending begins,” he said. He also pointed out that global IT giants like Cognizant have signaled the launch of small-scale AI projects.
Ultimately, Nomura predicts that major cloud companies that have invested heavily in AI infrastructure will need to start monetizing that investment. This will inevitably lead to increased spending on the application layer, and Indian IT services companies are well placed to participate. “The story around AI from an IT services perspective is likely to get better,” Bhandari concluded, suggesting a cautiously optimistic outlook for the sector.
