Gen AI takes centre stage at AGM of TCS and Infosys

On Wednesday, the day of the AGM of Bengaluru-based Infosys Ltd, a third of the 21 retail shareholders present in the meeting sought clarity from company chairman Nandan Nilekani and chief executive officer Salil Parekh on GenAI's impact on the company. 

Last month, 20 of the 30 questions posed to Tata Sons chairman Natarajan Chandrasekaran at the shareholders' meeting of Mumbai-headquartered Tata Consultancy Services Ltd (TCS) were on how the company was making itself future-proof.

Also read |  Tata Group working on 100 Gen AI projects: Chandrasekaran

The concern is understandable. Over the years, retail shareholders have benefited from the dividends and share buyback largesse of these IT services firms. Last year, TCS returned ₹47,445 crore to shareholders and Infosys, about ₹19,000 crore. Anything with the potential to negatively impact their business could dent these shareholders' income.

Questions ranged from how these companies were making their hundreds of thousands of employees learn GenAI technologies to the future impact of GenAI on business to whether these companies would even look to partner with other leading IT firms.

“I would like to know the contribution from the Generative AI segment. I think Accenture has started sharing that figure…we must share the revenue contribution from that particular vertical," said Vipul, an Infosys shareholder who was introduced only by his first name.

Evolution of the retail shareholder

Retail shareholders and non-institutions own almost a fourth of Infosys's total shares, while promoters own 13.1% and public institutions own the remaining 62%. At Mumbai-headquartered TCS, parent Tata Sons owns about 72%, while large investors and small investors own 23% and 5%, respectively.

“Bulk of retail investors still do not read much about companies. But it is heartening to see many keep themselves abreast of the trends and being allowed by companies to ask these questions," said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research.

For now, the management of both TCS and Infosys have shied away from giving any quantifiable metrics, such as revenue or deal wins in the GenAI space.

Also read |  Infosys completes 25 years to US listing, here are its hits and misses

“GenAI will not only improve productivity, but also create impact we hitherto have not seen or imagined," said Chandrasekaran in his address to shareholders.

“People have accepted that, like any other general-purpose technology be it electricity, nuclear energy, the internet or even a discovery like fire, GenAI has enormous potential for good when explored and advanced within the guardrails of responsibility," Nilekani told shareholders.

Nilekani also said that Infosys is working on 225 GenAI projects, even as it has trained nearly 79%, or 250,000 of its employees on disruptive technology.

Growth concerns have accentuated after India's $254-billion IT services sector reported the weakest-ever dollar revenue growth of 3.8% last year, according to industry body National Association of Software and Service Companies or Nasscom. TCS ended with $29.1 billion in revenue, posting 4.1% dollar revenue growth, while Infosys recorded 1.9% growth to end with $18.5 billion.

The spectre of GenAI

One of the reasons behind investor uneasiness is whether GenAI could automate much of the work like software testing, deployment, maintenance and modernization. This implies cannibalizing work done by outsourcing firms and eventually hurting the future cash generation of India's IT services companies.

This risk was flagged by one veteran IT services leader earlier this month.

“The concern is that GenAI will soon automate much work in the current model — pushing more workloads from people to software — thus eating into future cash flows," Malcolm Frank, former president and board member of Cognizant Technology Solutions Corp. said in a post on blogging platform Medium on 14 June.

“GenAI is not eating the Software Development Life Cycle (SDLC) from its head (e.g., consulting, analysis, design and development); it's eating it from the tail," Frank wrote, explaining that the tail of the work is software testing, deployment, maintenance and modernization.

Impact of GenAI

Since the launch of ChatGPT on 30 November 2022, GenAI has become the biggest talking point in the technology world as a potential catalyst for business disruptions. 

Between 1 December 2022 and 26 June this year, Indian IT services firms have lagged behind the 'magnificent seven' in terms of market value growth. Shares of Nvidia, Meta, Amazon, Alphabet, Microsoft, and Apple have returned 647%, 313.5%, 98%, 84%, 77%, and 41.4%, respectively. Electric car maker Tesla declined -3.85 % in the same period.

Also read  |  All Generative AI output is essentially a hallucination

During this time, shares of homegrown IT services firms Tech Mahindra Ltd, HCL Technologies Ltd, Wipro Ltd, and TCS, have returned 29.6%, 27.5%, 20.2%, and 10.5%, respectively. Infosys declined 7% even as the benchmark BSE Sensex rose 23%.