DeepSeek AI impact on Indian IT: TCS, Infosys, Wipro, HCL Tech look set to gain; here's why

The innovative DeepSeek AI and its rising popularity are likely to make managements of US technology giants reconsider their AI capex plans. This pivot from brute capex to cost-efficient AI platforms could benefit Indian IT firms, analysts said.

Services spending generally seems to follow the big-tech capex cycle, just like during the cloud adoption phase, said MOFSL, which sees similar developments with AI. It said Indian IT and outsourced engineering often take a backseat during capex cycles but become integral to the value chain once the focus shifts from innovation to cost optimisation.

"Indian IT can play a significant role in the AI evolution by driving platform engineering and outsourced engineering capabilities, enabling enterprises to design, build, and scale these interfaces effectively. This could position Indian IT as a key player in the low-cost GenAI wave," the brokerage said.

In its Q3 commentary, Tata Consultancy Services Ltd (TCS) said: "Agentic AI allows us to orchestrate actual transactions inside business value chains using the planning and reasoning capabilities of large language models. Investments in AI, GenAI, and cloud services are driving cost optimization while enabling business transformation,"

The Infosys management said it was developing over 100 new Generative AI agents for deployment within its clients, helping in areas like automation, productivity, and growth.

AI is driving cost reductions in various client programs by improving productivity and streamlining operations, Infosys added.

"We are witnessing an increase in momentum in data, AI, and generative AI opportunities... Agentic AI is another big opportunity where we can enable our clients as they empower their employees and customers with more AI-led features. The cost of using LLMs or conversational AI models is reducing... It has dropped more than 85 per cent since early 2023, making more use cases viable," HCL Tech said post Q3 results.

Wipro, on the other hand, insisted it is an early adopter of Agentic AI, applying it beyond traditional productivity assistance to customer service and supply chain management. "Our investments in AI tools, platforms, and employee education support a strong ROI across internal and client-facing project," it said.

TechM, meanwhile, suggested that it was building sovereign large language models and have transitioned to creating small language models and tiny language models for specific enterprise needs.

Investor concerns globally appear to stem from DeepSeek’s reasoning model R1, released this month, as R1 model scores better than most reasoning models on standard assessments such as maths and coding and is comparable to OpenAI’s latest o1 model. While DeepSeek has not revealed the training cost, going by its API pricing, it is likely a substantial improvement over others, analysts said.

JM Financial said if DeepSeek’s claims are true, the immediate implication for upstream AI players – chip makers, hyperscalers – is negative.

But it could usher a widespread adoption across enterprises. That should be positive for downstream players such as IT Services providers.

"IT Services players have alluded to increasing use of Agentic AI and SLMs, which were solving for the high cost of training LLMs for enterprise use cases. Reasoning and distilled models will be shot in the arm towards that goal," JM Financial said.

MOFSL said DeepSeek’s developments will be a net positive for the domestic IT industry as demand for new hardware and additional space is expected
to increase.

On IT stocks, MOFSL said it is too early to ascertain the impact on individual stocks, as GenAI currently remains a small proportion of the overall deal total contract value (TCV), but it will keep monitoring this story further.