GenAI may pile pricing pressure on customer support and maintenance work of IT services companies

Generative AI that stormed the technology world with the launch of ChatGPT two years ago may be about to make its mark on India's $254 billion IT services industry. The industry will see pricing pressure beginning next year as contracts heavy on coding and phone support come up for renewal, multiple analysts and industry executives said. The analysis, the first to signal GenAI's impact on pricing, could serve as an alarm bell for investors in large IT firms such as Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd and Tech Mahindra Ltd, which are estimated to get a significant chunk of business from the two businesses. Given IT services companies largely employ headcount-driven business models, they will likely struggle to maintain their value proposition," Piper Sandler analysts Arvind Ramnani and John Nutt wrote in a note dated 4 December. "Clients will need fewer employees due to automation, and that means that IT services companies will have to scout for additional work to compensate for less work from the BPO and application maintenance arms," said Abhishek Kumar, equity research analyst at JM Financial Ltd, a Mumbai-based broker.