Indian IT's $20B Cash vs. Global Rivals' AI Startup Spree

The Indian IT services sector finds itself at a critical juncture, holding an estimated $20 billion in cash reserves while global counterparts like Accenture and Capgemini aggressively acquire Artificial Intelligence (AI) startups. This strategic divergence raises questions about whether Indian IT giants are missing a “generational opportunity” to lead in the rapidly evolving AI landscape.

Indeed, major global players are making significant moves to bolster their AI capabilities through acquisitions. Accenture, for instance, has been particularly active, completing the acquisition of Ammagamma, an Italy-based firm specializing in AI and generative AI technologies, as part of its $3 billion investment initiative to accelerate clients’ AI transformations. The firm also acquired Navisite to strengthen its managed services for the AI era in North America and Maryville Consulting Group to enhance its AI-driven digital transformation capabilities, targeting the burgeoning enterprise AI market. Accenture has also made strategic investments in companies like Reserv, an insurance claims processing company with AI-driven solutions. Similarly, Capgemini has demonstrated its commitment to AI expansion with a significant $3.3 billion acquisition of IT firm WNS, aiming to enhance its AI and machine learning capabilities and supercharge its Business Process Services (BPS) and agentic-AI offerings. Capgemini also closed the acquisition of Syniti in late 2024, reinforcing its data-driven digital transformation services, particularly leveraging generative AI for complex data migrations.

In contrast, India’s largest IT services companies, including Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, and Tech Mahindra, have historically adopted a financially conservative approach. Since FY16, they have generated nearly ₹8.9 trillion in cash profits, yet only about 13.5% of their cash flows have been reinvested into the business for capital expenditures or new projects. A striking 73% has been distributed to shareholders primarily through dividends and share buybacks. This preference for payouts over reinvestment accelerated post-pandemic, with FY25 seeing 76.2% of cash profits distributed as equity dividends, while gross block investment was a mere 8%.

Several factors contribute to this cautious stance. One key reason is the perceived lack of large and attractive acquisition targets within the Indian and regional IT markets, leading firms to limit M&A activities to smaller, strategic deals, often in areas like AI, cloud, or digital transformation, rather than transformative, large-scale purchases. Additionally, maintaining substantial cash buffers acts as a hedge against global economic uncertainty and currency fluctuations, aligning with shareholder priorities for immediate, predictable returns.

However, the imperative to invest in AI is growing stronger. AI is rapidly reshaping the IT services industry by automating routine tasks, enhancing cybersecurity, improving decision-making through predictive analytics, optimizing costs, and transforming customer support with intelligent chatbots and virtual assistants. Experts emphasize that AI is no longer just an opportunity but a necessity for survival and strategic transformation in the tech sector. The global AI market is projected to reach $190 billion by 2025, underscoring the urgency for IT professionals to adapt.

While Indian companies are indeed increasing their AI investments, with 93% of surveyed Indian respondents indicating they will increase their AI investments in 2025 and 76% already seeing positive ROI from their AI projects, the focus appears to be more on internal adoption and efficiency rather than aggressive external expansion through acquisitions of foundational AI technologies. Indian CEOs are prioritizing AI use cases with clear return potential and are focused on integrating AI into IT operations, software coding, and data quality management. However, concerns remain about India’s ability to produce global AI models and deep tech innovations, with some citing poor government support, limited R&D investments, a traditional mindset, and risk-averse investors as barriers.

The current approach by Indian IT firms, while ensuring shareholder returns and financial stability, risks them falling behind in the global AI race if they continue to rely on building upon others’ foundational AI investments rather than making their own transformative acquisitions. The “generational opportunity” lies in proactively integrating cutting-edge AI capabilities, a move that demands more than just incremental internal development; it requires strategic, often large-scale, inorganic growth to acquire talent, technology, and market share in this pivotal domain.