Fractal Analytics CEO Srikanth Velamakanni has urged Indian IT firms to raise R&D spending to 1–2% of revenue to lead in the AI era. Separately, the company announced a new US$17 million multi-year AI contract with a US healthcare firm, highlighting its focus on scaling AI-driven enterprise solutions.
Fractal Co-founder and Group CEO Srikanth Velamakanni, who currently serves as the Chairperson of NASSCOM, has outlined a new roadmap for Indian IT companies to remain relevant in the age of Artificial Intelligence. He argues that traditional strategies, such as simple acquisitions for scale, are no longer sufficient. Instead, he believes the industry must significantly increase research and development (R&D) spending to 1–2% of revenue and form deeper partnerships with startups to build novel technologies.
Velamakanni drew a comparison to the global pharmaceutical industry, where large players frequently collaborate with smaller companies to pioneer new breakthroughs. He suggested that Indian tech firms should adopt a similar model, leveraging startups for innovation while providing them with access to global clients. Currently, the technology sector in India spends approximately 0.5% of revenue on R&D, a figure that Velamakanni believes must rise to foster true intellectual property.
Fractal, which is listed on the BSE and NSE, also signaled its focus on this AI-driven strategy by announcing a new US$17 million (approximately ₹142 crore) multi-year agreement today. The contract with a major US healthcare enterprise focuses on modernizing the client's data and AI foundations. For investors, this win adds to the company's order book and validates its "AI-first" business model, which distinguishes it from more traditional, diversified IT services providers.
While the push toward AI offers significant growth potential, it also introduces specific business risks. Fractal’s strategy relies heavily on high levels of innovation, which requires sustained spending on specialized research and talent. Investors may note that this approach can lead to profit margin pressure in the short to medium term, especially when compared to larger IT conglomerates that derive steady cash flow from legacy technology support and maintenance contracts.
Furthermore, the execution of large, multi-year AI deployments remains a key challenge. As global competition in the AI consulting and integration space intensifies, the company must consistently deliver tangible business outcomes to retain its clients and justify its valuation. The reliance on enterprise-level AI projects means that any delay in technology adoption by clients or a cooling in corporate AI spending could impact future revenue growth.
Looking ahead, market observers may monitor Fractal’s R&D expenditure trends, the speed at which it converts these large AI engagements into recognized revenue, and how management balances the costs of innovation with the need to protect profit margins.