Mphasis CEO Nitin Rakesh has issued a stark warning to IT services companies against pursuing aggressive discounting strategies as enterprises accelerate their adoption of AI-led delivery models. Speaking at the company's post-earnings press conference on January 23, Rakesh emphasized that the industry's focus should shift from cost-cutting to fundamentally rebuilding service delivery approaches.

Strategic Shift Beyond Cost Optimization

"The race to the bottom is a very risky race," Rakesh stated, cautioning against the traditional approach of simply reducing prices. "Let's cut the price is a very discreet conversation. You have to fundamentally go after redoing how you deliver the service itself." His comments reflect a broader industry transformation where customers are no longer satisfied with vendors merely optimizing people costs but are demanding reductions in the effort required to deliver outcomes.

Strong Financial Performance Amid Industry Transformation

Mphasis demonstrated solid financial performance in Q3 FY26, supporting Rakesh's strategic positioning:

Revenue Mix and Commercial Models

The company's billing structure remains largely traditional, though clients are increasingly measuring providers on productivity metrics:

AI Impact on Operations vs. Engineering

Rakesh identified a critical distinction in how AI will disrupt different aspects of IT services. He emphasized that the most significant AI-led disruption will occur in "run" operations—day-to-day IT maintenance, monitoring, and support activities—rather than in software engineering roles. "I have not seen any enterprise telling me I'm going to reduce the number of engineers," he explained. "What they are telling us is I have a backlog that goes out two years. Can I eat into the backlog faster."

Modernization Opportunities and Legacy Systems

The CEO highlighted substantial opportunities in modernization work, estimating the legacy system transformation market at "a hundred billion dollars-worth of opportunity." He noted that enterprises must rewrite extensive legacy systems to integrate with cloud, data, and AI-ready infrastructure. This modernization demand represents a significant revenue stream as organizations redirect spending from traditional "run" operations to transformation initiatives.

Client Expectations and AI-Enabled Services

Rakesh shared specific examples of how client expectations are evolving, including a high-tech client whose CIO implemented GitHub metrics to measure contractor and service provider productivity. Despite maintaining hourly billing structures, clients increasingly expect AI-powered outcomes and are using tools including Gemini's Copilot and Anthropic's Claude. "They will still pay by the hour, but they're expecting a certain outcome powered by AI," he observed, emphasizing the industry's transition toward AI-enabled rather than people-enabled service delivery models.

Mphasis Co-CEO has identified three key sectors as primary drivers for the company's artificial intelligence business opportunities. The IT services company is witnessing significant potential for AI deals stemming from banking, airlines, and healthcare industries.

Strategic AI Focus Areas

The company's leadership has highlighted these sectors as particularly promising for AI implementation and growth:

Market Positioning

Mphasis is strategically positioning itself to capture the growing demand for artificial intelligence solutions across these critical business verticals. The Co-CEO's statement reflects the company's confidence in securing AI-related contracts and partnerships within these high-potential sectors.

Industry Implications

The focus on banking, airlines, and healthcare represents a targeted approach to AI business development. These industries are increasingly adopting artificial intelligence technologies to enhance operational efficiency, customer experience, and service delivery capabilities.