Strong Deal Pipelines Belie Market Concerns As 6.1% Revenue Growth Outpaces 2.3% Headcount Growth

1% revenue growth outpaces 2.3% headcount growth. India’s technology services industry may be facing a painful transition, but the underlying demand remains robust, with order books, future signings and deal pipelines continuing to strengthen, according to National Association of Software and Services Companies (Nasscom) President Rajesh Nambiar. The bigger question, however, is whether all companies will be able to adapt to an AI-led business model.

Nambiar estimates that 20-25 per cent of technology services companies may not make the crossover from the traditional Full Time Equivalent (FTE)-led model to one driven by AI, productivity and business outcomes. “The industry will survive. The answer is yes, I think the industry can move.

Will all the players in the industry make their transition? Maybe not, Nambiar told businessline. The industry’s latest numbers underline the nature of the transition.

Technology services revenue grew 6.1 per cent, while employee headcount rose just 2.3 per cent. The divergence is significant for an industry whose growth has historically been closely linked to hiring. That linearity has been broken, Nambiar said, pointing to the trend over the past several quarters.

Yet, despite slower revenue growth, companies are seeing a phenomenal amount of uptake” in order books. Future signings and deal pipelines have improved across the industry, even as technology stocks have faced heavy pressure from investors worried about the impact of AI and the returns on technology investments. Nambiar believes the market may be focusing excessively on the near term.

The fundamental driver of future demand, he said, is the need for enterprises to use AI not merely to improve productivity but to rethink and transform their businesses. That shift will fundamentally alter the traditional technology services proposition. Billing customers for additional manpower will increasingly give way to outcome-based engagements, where vendors are paid for the business value they create, he added. The transition will inevitably create churn in the workforce and put pressure on companies whose businesses remain heavily dependent on staff augmentation.