According to Kumar Rakesh, Analyst – IT & Auto at BNP Paribas, the industry is facing less risk to its business model and more uncertainty around how AI will change revenue streams. The concerns around Indian IT companies have largely shifted from whether they will remain relevant to how their revenue models will evolve as AI adoption gathers pace.
He said, “The risk what investors are grappling with, and what we are seeing today in the numbers is more on the revenue model, and that is something which will gradually take more time, and we think there would be some companies who are going to benefit from the transition to AI as they build more capabilities on the AI side and there are some companies who potentially can be laggard in this transition.”
The comments came after HCLTech’s investment in Sarvam AI, a move that Rakesh sees as a positive signal for the industry’s long-term direction.
“This deal definitely helps us build more confidence in terms of some of the companies becoming more aggressive in building their capability on the AI front,” he added.
Rakesh believes enterprises are unlikely to depend on just one or two AI model providers. Historically, businesses have preferred to diversify their technology stack, and he expects a similar approach to continue in the AI era.
Against this backdrop, HCLTech’s investment in Sarvam AI could help create globally competitive AI solutions from India and provide enterprises with greater flexibility in deploying different models for different use cases.
On the automobile sector, Rakesh said demand trends remain healthy despite global uncertainties.
He noted that fuel prices and inflation have not shown a strong long-term correlation with vehicle sales. Instead, consumer sentiment plays a more important role in determining demand.
Lower vehicle prices following GST rate cuts continue to support purchases, and BNP Paribas is not overly concerned about consumer demand, although growth is expected to moderate in the second half and in the next financial year.
The brokerage is keeping a close watch on commercial vehicle demand, where any disruption to industrial activity or fuel availability could affect truck usage.
Overall, BNP Paribas sees the AI transition creating a clear divide within the IT sector, making stock selection more important than ever, while the outlook for the auto industry remains supported by resilient consumer demand.
For the entire discussion, watch the accompanying video
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