India’s tech engine is primed for an AI boost

Competitive advantage. India’s technology sector is primed for an artificial intelligence boost. Companies like BMW are deepening their ties with the country’s IT and engineering services firms. That will help India take a bigger share of the global $4 trillion digital services trade.

Global firms are shifting focus to develop artificial intelligence capabilities and are relying more on their Indian offices to do so. Nearly 300,000 employees across U.S. tech companies were laid off in 2022 and 2023 according to Crunchbase research. Meanwhile, India-based roles formed a larger share of total hiring at tech titans like Alphabet, Microsoft, Meta and Amazon, as per data from staffing firm Xpheno. The country has over 50% share in the market known as global capability centres.

Those jobs are mostly back-office IT, finance, accounting and HR operations. But Indian workers are doing more complicated and higher-value tasks such as engineering research and development. Canadian insurer Sun Life Financial, for instance, relied on its local Indian office to develop AI tools, according to consulting firm Zinnov. BMW and outsourcing firm Tata Technologies recently formed an auto software joint venture in Pune, Bengaluru and Chennai. By 2026, companies are expected to hire more than a million data science and AI workers in the country, according to industry lobby Nasscom. That should boost India's exports of software, valued at $320 billion, or 11% of the global total.

It helps that the country has the biggest talent pool of data science and AI workers after the United States, according to Nasscom and consulting firm Draup. Moreover, the supply of general software engineers jumped 15% to 3 million in 2022, putting the country nearly on par with China, and at much cheaper costs.

All this bodes well for the country's IT outsourcing sector, which accounts for 7.5% of India's GDP. Shares of industry leaders Tata Consultancy Services and HCL Technologies have rallied over 23% and 38% respectively in the past year. The latter's stock now trades on 23 times forecast next 12-months earnings, per LSEG data, well above its five-year average of 18 times.

With global CEOs increasing spending in all things AI-related, India's tech engine is primed for a upgrade.

Context News

The BMW Group and Tata Technologies announced on April 2 that they have signed an agreement to form a joint venture to establish an automotive software and IT development hub in Pune, Bengaluru and Chennai.