Technologies like automation, AI, GenAI-enabled virtual assistants, Edge computing, 5G, and industrial IoT are set to create significant opportunities in the IT services sector.
Global technology spending grew at a slower pace of 4.4% year-over-year in the calendar year ended December 31, 2023, with enterprise software and IT services being the primary drivers of growth, and degrowth seen in hardware and devices according to the Strategic Review 2024 published by NASSCOM (the NASSCOM Report). Digital transformation and infrastructure modernization continue to be a global priority, with a particular focus on cloud and cybersecurity. IT leaders like Wipro has expected that increased interest and adoption of technologies such as automation, intelligent applications, and AI including responsible AI, GenAI-enabled virtual assistants, Edge computing, 5G, and industrial IoT will create opportunities for the services industry.
Digital Transformation and IT Services
Global IT service providers are equipped to support enterprises across various industries to overcome the current challenges, with a wide range of offerings for digital transformation cutting across consulting, application development, maintenance and support, R&D, technology infrastructure, and business process services.
World’s leading IT firms expect the IT services industry to accelerate and drive decisions in fiscal year 2025 based on investments made by their clients in key areas such as AI, GenAI implementation, cost optimization, operational excellence, digital transformation, vendor consolidation, productivity improvement, customer experience programs, innovation in products and services, talent management, future of workplace and workforce, and ESG initiatives.
Indian IT Services Sector Growth
According to the NASSCOM Report, revenue for the Indian IT services sector is expected to witness growth of 2% year-over-year in fiscal year 2024, led by infrastructure management and networking services in distributed environments, cloud-based software testing services, and consulting services.
It is expected that there will be an increase in foundational spend across cloud, IT modernization, digital customer experience, and digital engineering projects.
The Rise of AI-Related Activities
According to the NASSCOM Report, AI-related activities have witnessed a significant uptick with 2.7x growth in activities related to industry collaborations and partnerships, product/service launches, and enterprise GenAI strategies.
Leading IT companies expect that GenAI will be a key priority for IT service providers, with the legal and regulatory landscape expected to evolve rapidly, setting the stage for greater adoption in the second half of calendar year 2024 and into 2025. Governments across the world are expected to implement regulations that prioritize data protection, breach detection and containment, and the responsible use of AI.
Growth in Engineering Services (ER&D)
The NASSCOM Report estimates that engineering services (“ER&D”) will grow at 7.4% year-over-year. With digital imperatives and the resurgence of AI, ER&D maintains its concentration on digital engineering, leading to the development of new products and service categories.
Data analytics capabilities are enabling constant reinvention of services and aiding the launch of personalized products. Digital testing, virtual twins, and increasing reliance on software and coding have led to reduced costs and accelerated timelines for R&D and entering the market.
Focus on Cost Takeout and Operational Excellence
Enterprises continue to prioritize cost takeout and operational excellence initiatives, with spending expected to gradually improve in fiscal year 2025. Enterprises are also prioritizing sustainability and resilience, aiming to globalize their operations to take advantage of cost arbitrage, greater access to talent, and faster innovation.
The financial services, hi-tech, and telecom sectors continue to be soft with the healthcare and automotive sectors being bright spots. Consumer goods and manufacturing sector clients are investing cautiously due to cost takeouts and weak consumer spending.
IT Products in India
According to the NASSCOM Report, the domestic market in India for hardware is estimated to be US$ 17.7 billion in fiscal year 2024, compared to US$ 17.4 billion in fiscal year 2023, and overall revenue for the hardware industry is expected to be US$ 18.2 billion in fiscal year 2024.
IT Services
Global IT service providers are equipped to support enterprises across various industries to overcome the current challenges, with a wide range of offerings for digital transformation cutting across consulting, application development, maintenance and support, R&D, technology infrastructure and business process services. The IT services industry is expected to accelerate and drive decisions in fiscal year 2025 based on investments made by clients in key areas such as AI, GenAI implementation, cost optimization, operational excellence, digital transformation, vendor consolidation, productivity improvement, customer experience programs, innovation in products and services, talent management, future of workplace and workforce, and ESG initiatives.
IT Services
According to the NASSCOM Report, revenue for the Indian IT services’ sector is expected to witness growth of 2% year-overyear in fiscal year 2024, led by infrastructure management and networking services in distributed environments, cloud-based software testing services, and consulting services. It is expected that there will be an increase in foundational spend across cloud, IT modernization, digital customer experience, and digital engineering projects.
Trend Information
The business environment remained uncertain in the fiscal year ended March 31, 2024. Inflation and interest rates both stayed high along with geopolitical volatility, This resulted in customers rigorously reviewing their technology investments and cutting down or deferring discretionary spends. Global macro-economic measures to rein in inflation may have reached the tail end of the cycle. There are expectations of rate cuts towards the second half of the calendar year 2024, and this is expected to drive overall growth in the calendar year 2024.
Further, escalation in geopolitical conflicts can potentially lead to spikes in energy prices, disrupt supply chains and create trade barriers.
Enterprises continue to prioritize cost takeout and operational excellence initiatives with spending expected to gradually improve in fiscal year 2025. Enterprises are also prioritizing sustainability and resilience, aiming to globalize their operations to take advantage of cost arbitrage, greater access to talent, and faster innovation. The financial services, hi-tech and telecom sectors continue to be soft with the healthcare and automotive sectors being bright spots. Consumer goods and manufacturing sector clients are investing cautiously due to cost takeouts and weak consumer spending.
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