AI could create more opportunities for Indian IT firms, not fewer: BofA’s Kunal Tayal
Kunal Tayal of BofA Global Research argues AI advancements could expand opportunities for Indian IT firms rather than reduce demand, as companies shift focus beyond coding into broader business processes. He notes cautious near-term spending due to budget reallocations toward AI infrastructure and global uncertainty, but corporate guidance suggests growth stabilization rather than decline.
Kunal Tayal, Senior Analyst-IT at BofA Global Research, believes artificial intelligence (AI) advancements are creating new opportunities for Indian IT services companies rather than disrupting their operations. AI is now extending beyond coding tasks into broader business processes, potentially expanding the sector’s long-term demand. Indian IT firms are also strengthening their relevance by partnering with AI providers like OpenAI and Anthropic, which have announced plans to establish services arms, indicating a growing market for AI implementation support. Despite this optimism, Tayal warns that the near-term environment remains uncertain for the IT sector. Enterprises are prioritizing AI infrastructure and token consumption, which may reduce budgets for traditional IT services projects. Additionally, global uncertainty following the West Asia crisis has led some customers to adopt a more cautious approach to technology spending compared to earlier in the year. Tayal cautions that investor sentiment has become overly pessimistic about the sector’s growth outlook, as some feared revenue growth could stagnate or decline alongside margin pressures. However, recent corporate guidance from Indian IT firms and global companies like Capgemini suggests growth is stabilizing rather than deteriorating sharply. Within the sector, Tayal expects uneven benefits from AI adoption, with stronger opportunities for companies specializing in engineering services, data analytics, and BPO operations. Firms competing primarily on aggressive pricing may struggle in an AI-driven environment, as their business models may not align with evolving demands. On valuations, Tayal emphasizes that growth visibility is the key factor for investors. Companies delivering low single-digit growth may justify moderate valuation multiples, while those achieving high single-digit growth could command stronger valuations over time. The analyst advises monitoring corporate guidance and sector trends to assess long-term potential.
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