A major concern with regards to India’s IT services companies has been concerns surrounding the deflationary pressures surrounding them.
By now, Nearly 50% of IT services contracts have already seen AI-led deflation, according to the Tata Consultancy Services (TCS) MD and CEO K Krithivasan, who highlighted this in a post-earnings interaction with CNBC-TV18 on Friday, October 9.
AI deflation pertains to the drop in the cost of producing goods, services and knowledge work as most of these tasks get automated by AI, reducing labor hours and lower unit prices.
Krithivasan agreed with the argument saying most of the estimates come from the perspective that any long-running contract is a tenure about three to four years.
“And we’ve been talking about AI deflation for one and after two years, so the estimate of about 50% should be approximate, more or less right,” the TCS MD & CEO said.
Krithivasan also added that he does not expect AI deflation to persist for another two years and that new projects should offset the impact faster. According to him, the AI-led business opportunities could offset revenue deflation much sooner than expected.
“Our belief is there is more and more projects that are being driven for drive. All this time, we are talking about productivity benefits alone, but newer projects that are leveraging AI for business outcomes are getting kicked off. I am expecting more net new projects also to come in that will offset this AI-driven deflation in a much faster clip,” he said.
Krithivasan also said that it is difficult to predict when AI-led revenue growth would outweigh deflationary pressures.
“I don’t think we’ll be able to guess because this technology is also evolving fast. So to put a line in and say that from Q3 of next year, it will not. I don’t want to hazard a guess here. We seem we are quite positive with what we are,” he said.
At the end of the September quarter, TCS reported AI segment revenue of over $3 billion from $2.6 billion in June. The AI segment now contributes to over 10% of the company’s overall topline.
Krithivasan said he is seeing strong customer interest in AI-led business transformation and is optimistic on the growth outlook
TCS reported results on Thursday after market hours that were in-line with expectations but the international business growth was the key highlight in the earnings statement.
Shares of TCS are now trading 4.6% higher on Friday in reaction to the results at ₹2,172.9.