The Indian IT services industry, which has faced headwinds in recent times, is finding respite in the automotive sector. Auto companies are increasingly turning to IT firms for support in their transformation to electric and autonomous vehicles, leading to a surge in revenue from automotive clients. This growth is particularly evident in the manufacturing and engineering, research and development (ER&D) segments.
Infosys, HCL Technologies, and TCS are leading the charge, with automotive clients contributing a significant portion of their revenue from manufacturing and ER&D services. This growth has outpaced the overall revenue growth for these companies.
The automotive industry’s shift to electric and autonomous vehicles has created a need for specialized software expertise, which auto firms often lack. This has led to increased outsourcing of software development and engineering services to IT companies.
Industry analysts estimate that auto firms now contribute 25-35% of revenue from manufacturing or engineering, ER&D services of IT companies, compared to 15-20% four years ago. Automotive clients comprise at least 10% of the global ER&D market, worth $1.8 trillion.
In addition to driving growth for IT companies, the automotive industry’s transformation is also fueling opportunities for specialized automotive engineering firms. Companies like KPIT Technologies and Tata Technologies are experiencing strong growth as they focus on this niche market.
While the automotive sector provides a boost to the IT industry, analysts caution that BFSI (banking, financial services, and insurance) remains a crucial vertical for IT services companies. The cyclical weakness currently observed in BFSI is not expected to diminish its strategic importance in the long term.
Overall, the automotive industry is emerging as a key growth driver for the Indian IT services sector in FY24, providing opportunities for both large and specialized IT companies to capitalize on the demand for software expertise in the automotive transformation.
