The tech services industry, valued at $1.5 trillion globally, is far from being destroyed, Infosys CEO Salil Parekhtold Surabhi Agarwal and Sruthijith KK in an interview on the sidelines of the India AI Impact Summit. While there is compression in some parts of the tech services business due to AI, the growth opportunity is also significant, he said. Edited excerpts:
When an industry veteran like Vinod Khosla makes a dramatic statement that, in five years or less, such a pivotal industry is going to be decimated, what is your response?
I have not followed this point of view, but what I will say is that we see six areas of opportunity. If you look at the size of tech services, it’s $1.5 trillion in overall global market size. Our analysis is that the AI services market is $300-400 billion. Going by this, it therefore stands to reason that far from getting decimated, the Indian IT industry will be thriving in 2030. Infosys will leverage those six areas of growth, and we’ll see that we get revenues from these six areas of growth.
If you look back a few years, there was a big shift in the digital business. We had shared publicly that some 20% of our work was coming from digital. And then we showed how those digital components, where we had to invest and shift, after a few years, became over 60% of our revenues. So you have to execute on this play.
It’s clear that a lot of low-level coding and so on is moving to these (AI) tools, with more ease and productivity. Does this impact the core business of companies like Infosys?
A large company today has technology that is 15-30 years old, and all of it is working within the company. Whenever a technology comes in, it is a brownfield area—somewhat old and new. Greenfield is when something is entirely new. What is likely to happen with these technologies is that we need to coexist with everything because it is not that overnight everything is going to be replaced. The foundational models are very ahead in terms of innovation. But dispersion within a large enterprise is slower. That is where our engineering is needed to make sure it works within your organisation.
How is the demand environment looking now, after three years of consistent softer business?
The macro at this stage is looking better than it was 12 months ago. At least in the US market, they have reduced the regulations quite significantly. There’s at least some talk that interest rates may further come down. When we talk to people, the sense we get is that they feel the business environment is more supportive.
Your competitors are getting into AI infrastructure play or semiconductors, diversifying into newer areas. Why has Infosys stayed away from the infra side of AI?
If you look at our business, it’s essentially a services business with a certain view on what we do with the cash we generate. Part of it we return to the shareholders, part of it is for acquisitions. We have low capital intensity. We think there’s a lot of innovation to be done in the next set of services, and that is our focus. It is typically difficult to have both products and services because you then lock yourself out of the services component of that product.
In terms of the long-term future of work, what does it look like for the IT services industry, because it employs a significant part of the country’s middle class?
Look at the data. This year, through March, we will end up recruiting 20,000 college graduates in India. We’ve already had 18,000 at the end of Q3. That’s just the college graduates. We’ve already announced that we will recruit 20,000 college graduates next year. What tends to happen is that some of these projects will require more people over time. Yes, they will also use agents, but the overall size will still be larger. If you assume the IT spend, or work is the same, then there is more of this view (of job losses). To have more headcount is still more positive than negative. What we see is some of the skills that the individuals will have, even as they enter the workforce or over time, will give them more specialisation.
There has also been criticism that for a long time, Indian IT companies did not innovate much or focus on IP creation or build future-ready capabilities. What are your thoughts?
IT service is a different business model. In that, we have done tremendous innovations. If you look at the last cycle on digital (technology), we built the Cobalt cloud platform. This cycle, we built Topaz. We are not doing other businesses. Our focus is very much on what we do very well, in tech services, and it will continue like that.
One of the things people imagine is that enterprises will stop relying on external vendors or long-term partners like you and build tools in-house. What are enterprises likely to choose?
The question I have to keep in mind is whether I am making sure it has enough resilience to changes, which could make this less relevant for the business. Typically, large mature enterprises try to do something which gives them the ability to do different things over time. We are strategic AI partners of 15 of the largest 25 financial services clients. We have similar statistics for high tech, telco and other sectors. What it means is we have experience across a lot of different technologies. My sense is that most large enterprises prefer that approach.
There’s been a lot of criticism about how the Indian IT services industry has not given back enough to the startup ecosystem. What are your thoughts on this?
Infosys has an innovation fund in which we actually invest in a lot. We could always do more, but the startup ecosystem focus is very broad, whereas Infosys has a narrow focus, to work with its global clients. Wherever there is an overlap, there’s a tremendous amount of work going on. We’ve done some investments in data analytics work, healthcare work and so on.
Are you seeing any weakness in inbound business, deal pipeline or outlook for the next few years?
We reported our results for the last quarter, and that is where we are. There is no interim update to that. There was a good traction in financial services, energy and utilities. Large deal pipelines were good. We will have guidance for the next year in April. We have shown that AI productivity will also lead to compression in some parts, but there is a dynamic to this. There is a growth opportunity, and there is a compression, but today, it’s not that one is outweighing the other.
What is your larger strategy for tech services in the age of artificial intelligence?
We are building agents for clients using the foundational models. At the AI day, we had about 10 or 12 client examples that were shown. These weren’t pilots but large-scale projects. There is significant activity in this space, and clients want to work with a trusted partner who can guide them. That is a major component of our AI strategy. Another is a process where, if you have a customer service process (we help) you change the process using agents and, reducing the time, increase the quality and so on. Then we have legacy modernisation, since there are a lot of companies where technology is old. So, to me, there’s a huge opportunity out there that we see in AI services.
(Shristi Achar contributed to this article)
