The information technology sector can witness the emergence of a potential multi-year technology spending supercycle, similar to the transformative period during the early 2000s, according to Ravi Menon, IT services analyst at Macquarie Capital.
Speaking to NDTV Profit about the report, Menon emphasised that the sector is now entering a new cycle due to artificial intelligence spending and technology architecture overhaul.
“The current excitement around AI wouldn’t be possible without solid-state storage prices dropping over the past decade or network latency falling over the last 10–15 years. Without those, cloud computing and real-time data processing wouldn’t exist,” he said.
“Now, everything’s coming together for AI. I haven’t seen something like this since the web browser opened up data interaction beyond the enterprise firewall,” Menon added.
Noting the impact of this multi-year tech supercycle on the Indian IT sector, Menon said the growth might not be explosive, but the overall industry could grow steadily at 10–12% annually over the next three to five years, or more.
“Mid-cap firms and some large caps like HCLTech could grow even faster, in the 12–15% range. Unlike the previous digital transformation wave, this AI-driven cycle will be highly tailored as each enterprise will have unique priorities,” he explained.
This means that IT services, rather than product-based, will be able to capture this new wave of growth better. With more custom builds and fewer off-the-shelf solutions, services firms are likely to benefit the most, according to Menon.
The IT analyst highlighted that AI would actually help expand the market, particularly in modernising legacy systems.
SaaS was expected to make everything redundant. People thought that everything would be done by business users with no need for developers, according to Menon.
“Even with AI, we’ve heard that developers won’t be needed anymore. I actually think it’s the exact opposite,” Menon argued. “Yes, there will be productivity gains, but AI will also open up a new market we’ve talked about for 30 years.”
With AI, the cost and risk are lower, making this a strong opportunity, especially for large firms like TCS. Companies like TCS, HCL and Persistent Systems are likely to benefit through their AI investments, Menon said.
On uncertainty due to US-China tariffs, Menon said the US won’t damage itself or the global economy too severely. “But, with the dialing back of tariffs, there’s a limit to the damage the US is willing to do to itself or the world.”
“This gives people more confidence that things won’t get out of hand. We’re not heading into a deep recession or significantly high inflation,” he said. “The uncertainty caused delays, but now those who stayed the course will likely benefit from larger transformation programmes.”
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