TCS, Infosys, HCL: Impact of GCC, AI & a tech investing book to read
It is hard to ignore the fact that GCC revenues grew by almost 40 per cent in 2024, coinciding with a sharp slowdown in Indian IT services revenues.
- Sep 25, 2025,
- Updated Sep 25, 2025 8:52 AM IST
The slowdown in India’s top IT services companies is no longer easy to explain away as a macro story. According to Nirav Sheth, CEO – Institutional Equities at Emkay Global, two structural shifts — the rise of Global Capability Centers (GCCs) and the rapid adoption of Artificial Intelligence (AI) — are beginning to reshape the industry dynamics for domestic IT firms such as Tata Consultancy Services (TCS), Infosys and HCL Technologies.
Sheth points out that GCCs are increasingly competing head-on with IT vendors. Reports suggest that nearly 65 per cent of enterprises are shifting at least 10 per cent of vendor work into GCCs, particularly in high-value functions such as R&D, digital transformation and AI-driven projects. In his view, it is hard to ignore the fact that GCC revenues grew by almost 40 per cent in 2024, coinciding with a sharp slowdown in Indian IT services revenues. When a global bank or enterprise outsources work to India, that volume is now split between its in-house GCC and its vendor, he said.
"It is hard to imagine that a near-40 per cent growth in GCCs’ revenues in CY24 did not cause a rather sharp slowdown in IT Services revenue growth in the same year," Sheth said.
AI disruption
AI, meanwhile, is the second major headwind. Generative AI is already demonstrating 10–50 per cent productivity improvements in coding, with the marginal cost of writing software rapidly approaching zero. This raises the prospect of commoditised pricing and revenue stagnation for IT vendors. Optimists argue that cheaper code will unlock new use cases and higher volumes, but Sheth is skeptical that falling prices and rising demand will align seamlessly.
He believes the IT sector may already be at or near peak employment levels. What makes AI particularly disruptive, he stresses, is its non-linear nature: breakthroughs can suddenly render entire workflows obsolete. With billions flowing into data centres and trillions being added to mega-cap tech valuations, disruption is seen sudden.
"For every legal AI model, scores of legal firms will be impacted. For every Animated AI model, the business model of production studios will be impacted, and so on. The main point I want to make is that over the next few quarters, we are likely to witness a sudden 20 per cent drop in prices of sectors or companies that are being disrupted," Sheth said.
"If AI is real, this is certain to happen; the only question is—when? If I see a 10,000-tonne truck coming at me from afar but am unsure about its cruise speed, I will prefer to stand away rather than attempt to guess the rate of acceleration," he added.
Looking at the numbers, Sheth’s analysis shows that pre-pandemic (FY17–20), the top three IT firms clocked around 10 per cent constant currency revenue CAGR, with Ebitda growth in line. Post-pandemic (FY20–23), CC growth inched up to 10.5 per cent, but rupee revenues rose faster at 14.5 per cent due to a weaker currency. However, over FY24–25, growth stalled dramatically: CC revenues rose just 3–4 per cent, while operating profit grew in mid-single digits. Interestingly, this occurred despite reasonably resilient global GDP growth. The US economy, in particular, expanded strongly — yet IT firms reported just 1 per cent growth in US revenues. Europe, by contrast, delivered healthier growth of 6–9 per cent. Sheth argues that attributing the slowdown purely to “macro uncertainty” is misleading. The bigger culprits are GCC insourcing and AI-driven disruption.
Book to read Sheth recommended investors to read an interesting book on technology investing, titled ‘Engines that move the market: Technology Investing from Railroads to the Internet and beyond’, which is a deep research on all major technology innovations in the past century, specifically from an investment perspective.
"Among the 11 commandments mentioned in it, I am highlighting two that I found most relevant: i) All new technologies veer from capital starvation to capital surplus and back again and ii) spotting the losers is easier than spotting the winners."
The slowdown in India’s top IT services companies is no longer easy to explain away as a macro story. According to Nirav Sheth, CEO – Institutional Equities at Emkay Global, two structural shifts — the rise of Global Capability Centers (GCCs) and the rapid adoption of Artificial Intelligence (AI) — are beginning to reshape the industry dynamics for domestic IT firms such as Tata Consultancy Services (TCS), Infosys and HCL Technologies.
Sheth points out that GCCs are increasingly competing head-on with IT vendors. Reports suggest that nearly 65 per cent of enterprises are shifting at least 10 per cent of vendor work into GCCs, particularly in high-value functions such as R&D, digital transformation and AI-driven projects. In his view, it is hard to ignore the fact that GCC revenues grew by almost 40 per cent in 2024, coinciding with a sharp slowdown in Indian IT services revenues. When a global bank or enterprise outsources work to India, that volume is now split between its in-house GCC and its vendor, he said.
"It is hard to imagine that a near-40 per cent growth in GCCs’ revenues in CY24 did not cause a rather sharp slowdown in IT Services revenue growth in the same year," Sheth said.
AI disruption
AI, meanwhile, is the second major headwind. Generative AI is already demonstrating 10–50 per cent productivity improvements in coding, with the marginal cost of writing software rapidly approaching zero. This raises the prospect of commoditised pricing and revenue stagnation for IT vendors. Optimists argue that cheaper code will unlock new use cases and higher volumes, but Sheth is skeptical that falling prices and rising demand will align seamlessly.
He believes the IT sector may already be at or near peak employment levels. What makes AI particularly disruptive, he stresses, is its non-linear nature: breakthroughs can suddenly render entire workflows obsolete. With billions flowing into data centres and trillions being added to mega-cap tech valuations, disruption is seen sudden.
"For every legal AI model, scores of legal firms will be impacted. For every Animated AI model, the business model of production studios will be impacted, and so on. The main point I want to make is that over the next few quarters, we are likely to witness a sudden 20 per cent drop in prices of sectors or companies that are being disrupted," Sheth said.
"If AI is real, this is certain to happen; the only question is—when? If I see a 10,000-tonne truck coming at me from afar but am unsure about its cruise speed, I will prefer to stand away rather than attempt to guess the rate of acceleration," he added.
Looking at the numbers, Sheth’s analysis shows that pre-pandemic (FY17–20), the top three IT firms clocked around 10 per cent constant currency revenue CAGR, with Ebitda growth in line. Post-pandemic (FY20–23), CC growth inched up to 10.5 per cent, but rupee revenues rose faster at 14.5 per cent due to a weaker currency. However, over FY24–25, growth stalled dramatically: CC revenues rose just 3–4 per cent, while operating profit grew in mid-single digits. Interestingly, this occurred despite reasonably resilient global GDP growth. The US economy, in particular, expanded strongly — yet IT firms reported just 1 per cent growth in US revenues. Europe, by contrast, delivered healthier growth of 6–9 per cent. Sheth argues that attributing the slowdown purely to “macro uncertainty” is misleading. The bigger culprits are GCC insourcing and AI-driven disruption.
Book to read Sheth recommended investors to read an interesting book on technology investing, titled ‘Engines that move the market: Technology Investing from Railroads to the Internet and beyond’, which is a deep research on all major technology innovations in the past century, specifically from an investment perspective.
"Among the 11 commandments mentioned in it, I am highlighting two that I found most relevant: i) All new technologies veer from capital starvation to capital surplus and back again and ii) spotting the losers is easier than spotting the winners."