Employees chat outside the Infosys Experience Center at the Infosys campus in Bengaluru, India.
There was a time over two decades ago when India’s IT services majors—TCS, Infosys, HCL, Wipro, and Tech Mahindra—were the darlings of global investors. In the era before the convergence of social media, e-commerce and the smartphone, the Indian majors (along with a handful of American companies like IBM and HP), epitomized the promise and potential of information technology.
The peak moment of their influence was the Y2K phenomenon—when computers were expected to malfunction or simply shutdown if their internal clocks failed to recognize the year 2000—which led to a surge in corporate spending on all things IT. However, the new millennium has not been kind to India’s IT players because they have essentially been run over by the global tech behemoths: Apple, Alphabet, Microsoft, Meta and Amazon (as well as their Chinese counterparts like Alibaba and Tencent).
As the global giants were accumulating record profits and trillion-dollar market caps, India’s IT majors have been receiving less attention from investors and the media, with some analysts even labelling them as has-beens, struggling to get by in the low margin, commodified segments of the IT services business.
These hasty conclusions are increasingly looking like a mistake as India’s top five IT majors are not only thriving financially but are well-positioned to benefit from a potent cocktail of increasingly sophisticated business offerings, favorable geopolitics, homegrown innovation, and tectonic changes in how information is accessed and processed.
There is strength in numbers, and taken together, TCS, Infosys, HCL, Wipro and Tech Mahindra are likely to report combined revenues of around $75 billion in the latest financial year, have a market capitalization of around $300 billion (lower it must be said than Meta’s $480 billion), employ over 1.7 million staff globally, and yes, all of them are generating healthy profits. Together, India’s IT services industry generated exports of $156 billion in the 2021-22 fiscal year, according to official data.
Not bad for a sector and a group of companies which were almost forgotten in the investor rush since 2007, which favored Big Tech’s American and Chinese companies. As the fortunes of both reverse—in America due to the tech-lash and shifting investor preferences toward value rather than growth stocks, and in China due to a stifling regulatory crackdown—the Indian IT majors are hitting a sweet spot for four reasons.
When I was a journalist in India in the 1980s, the IT services companies were derisively referred to as a “body shoppers” because they essentially recruited IT staff at home to be employed overseas on short-term contracts with clients. The IT majors have evolved their business models considerably since then, and are today on the vanguard of providing expertise on the full spectrum of services spanning cloud, cybersecurity, IT governance and consulting. This is a big shift.
The geopolitical environment has also transformed since 2016, with clear and sustained competition between America and China over technological supremacy. In this battle, India happens to be well-positioned as an ally of America and member of the Quad, whose foreign ministers met in New Delhi last week, and pledged cooperation in areas like supply chain resilience.
The Indian IT majors already have a sizable business footprint in America and Europe, and this is poised to expand further as they are seen as a preferred global supplier of software and services. As data standards between China and America decouple, a phenomenon which is already underway, the Indian companies and their American peers stand to benefit as companies reconfigure systems and processes.
A third reason for bullishness about the Indian majors is the country’s homegrown innovation, a phenomenon which has accelerated over the last two decades. India’s world-breaking innovation in digital identity and payments, called the India Stack, is driving inclusion at home and has positive spin-off benefits for the majors. Much of the developed and developing world is keen to access this expertise. It is no coincidence that the originator of India’s digital identity program, Aadhar, is Nandan Nilekani, a cofounder and Chairman of Infosys.
A final reason for optimism is disruption in technology, evidenced by the recent mania for generative AI. While a slowdown in corporate spending on hardware and the cloud is inevitable due to economic headwinds in America and Europe (and will impact the Indian majors), they are also likely to benefit from business model transformation. While the AI phenomenon is very different in scope and objective compared with the Y2K scare of the early 2000s, there are some commonalities. What connects them is their ability to disrupt business models, forcing corporations to reshape how they manage their businesses. Knocking at their door will be the Indian IT majors who are likely to face an investor renaissance this decade.
