A New Paradigm

IT companies will need to adjust business models

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The 3QFY25 (October-December 2024) results and associated management guidance from the information-technology (IT) sector indicate that the industry may be on the cusp of a tectonic shift in business models. This impression was reinforced by industry leaders at the recent Nasscom Technology and Leadership Forum. While the third-quarter results were decent and guidance was cautiously upbeat, the impact of the adoption of artificial intelligence (AI) is clearly being felt and this will necessitate a change in business models for the classic Indian IT services firm. Management commentaries reflect an improving macro environment with green shoots in discretionary spending, while the deal pipeline is strong. As generative AI adoption increases, output is no longer directly correlated to headcount and business clients are looking at moving to the hyperscaler model, with an increase of "insourcing". HCL Tech Chief Executive Officer and Managing Director C Vijayakumar says clients are now looking to double revenue while deploying half the headcount.