New Delhi [India], November 15 (ANI): Rapid advances in artificial intelligence could put more pressure on prices for traditional Indian IT services in the near to medium term, even as demand for new AI projects grows, Systematix Institutional Equities said in its second-quarter FY27 sector earnings review.

"Although the rapid model evolution may intensify deflation in the near to medium term, we expect new AI-led demand to outpace productivity-driven pricing and effort reductions over the long term," the brokerage said in its report.

As AI allows IT providers to complete the same work with fewer staff hours, customers can seek a share of those savings through lower contract prices. Systematix said AI-related pricing pressure on traditional services remained broadly stable in the September quarter, but could intensify as models become more efficient. Longer sales cycles and client spending focused on cost savings are also expected to keep sector growth steady in the medium term.

The brokerage said the same technology could generate new business as it becomes cheaper for companies to use. "Falling token costs could improve use-case economics and spur new implementations," the report said. Tokens are units of text or other data that AI models process, and providers often charge based on the volume used. Lower costs can make it commercially viable for companies to deploy AI across more business processes.

Cognizant offered an example in its October earnings call. The company said it used AI to rebuild logistics firm Odyssey's transportation management platform at a net saving of 37 per cent compared with the conventional approach. 

AI work already accounts for around a tenth of revenue at two of India's largest IT services companies. Tata Consultancy Services reported an annualised AI revenue run rate of USD 3.1 billion in the September quarter, with AI crossing 10 per cent of revenue. Infosys said its AI revenue rose 29 per cent from the previous quarter and accounted for 10.5 per cent of total revenue. (ANI)