Indian IT Stocks Lose $56 Billion as AI Fears Test Industry's Ability to Adapt

AI Scare's $56 Billion Hit Tests Resilience of India's IT Stocks

For investors bullish on India's technology services industry, the "AI scare trade" has created an opportunity to buy shares of companies that are able to survive the doomsday predictions. A gauge including Tata Consultancy Services Ltd. and Infosys Ltd. has shed $56 billion in combined market value since Anthropic PBC released a tool seen as a threat to their business models. The slide in Indian tech firms has stood out in Asia, a region whose large hardware industry is seen as indispensable to the AI ecosystem. Analysts at HSBC Holdings Plc and JPMorgan Chase & Co. said worries may be overdone, as Indian IT firms stand to gain from more customers requiring help integrating artificial intelligence into their operations. Investors including PPFAS Mutual Fund say the sector will be able to flexibly respond to changes. "Every time there's a technological shift, IT companies have adapted, reskilled their staff and ensured client needs are being met," said Raunak Onkar, research head and fund manager at $17 billion PPFAS, which added shares of Indian software makers to its portfolio last month. The companies have had success because they can quickly offer affordable knowhow, he added. The optimism shows how some investors are betting that the recent selloff in India's software companies has the potential to reverse. Technology stocks have been roiled globally by worries over the impact of AI tools on businesses, particularly, those that are built on winning productivity gains for companies. The NSE Nifty IT Index has slumped 15% since Anthropic's announcement earlier this month, on track for its worst month since March 2020. While software-heavy Chinese and Australian tech stocks have also been hit, losses have been a particular concern in the cohort that was seen as a flagbearer of India's growth story. The nation's IT outsourcers rose to prominence in the late 1990s by helping Western companies solve the Y2K bug, which had threatened computer chaos at the turn of the millennium. Since then companies have survived fluctuations in global growth from a series of crises, as well as the dawns of new technologies from mobile telecommunications to cloud computing. Now the software business model is seen at risk of obsolescence from the rise of AI and robotics. But analysts like Stephen Bersey at HSBC see such views as "flawed and illogical." "To optimally unlock the potential of the 'generated' information that AI produces, software is needed to orchestrate the overall digital interactions between AI and non-AI system enterprise components," he wrote in a note dated Feb. 9. "India based companies have had the ability to create and market enterprise class software for decades ... at scale." Skeptics are particularly worried about the potential for AI's productivity improvements to eat into earnings for IT outsourcers. For Phanisekhar Ponangi, co-founder of Mavenark Asset Managers Pvt., "the scare is real." "Over the last 30 years, IT businesses succeeded by saying they would improve productivity," he said. The industry is set for a big change as AI compresses project timelines and reduces the number of workers needed, while "the client will pocket the productivity gains." Others argue that the sector has seen what's coming and is prepared. Companies are increasingly talking about AI on their earnings calls, and even disclosing related revenues. TCS in January said AI solutions now generate $1.8 billion in annualized revenue for the company and are growing at around 17% quarter-on-quarter. Manu Rishi Guptha, a portfolio manager at MRG Capital, said the market is also overlooking two cushions for Indian IT firms: large cash piles that can fund shifts as AI disrupts business models, and a relatively young workforce that can adapt quickly. The stock meltdown may actually be an "opportunity in disguise," Guptha said, adding that the industry is seeing resilient order flows and share valuations have dropped. The Nifty IT gauge is trading at 20 times forward earnings estimates, the lowest level since April 2023.

Indian IT stocks set to lose $50 billion in worst week since pandemic on AI fears

Feb 13 (Reuters) - Indian IT shares were headed for their worst week since March 2020 on Friday, losing about $50 billion in market value in a rout sparked by worries about the impact of AI on the sector. The sell-off intensified following a tech-led slide on Wall Street overnight, where concerns about shrinking margins hit heavyweights such as Apple (AAPL.O), opens new tab and pushed investors into safe-haven bonds ahead of key U.S. inflation data. The launch of a tool by tech startup Anthropic last month triggered a global tech sell-off and intensified concerns that rapid adoption of generative AI could upend India's $283 billion IT services industry. The Nifty IT (.NIFTYIT), opens new tab index fell as much as 5.2% on Friday before paring losses to roughly 1.7% by 1 p.m. IST. For the week, the index is down 9.4%, its steepest drop since early March 2020 when COVID-19 gripped global markets Sat Duhra, portfolio manager at Henderson Far East Income, said AI presents opportunities that Indian IT companies should tap into. "I think the companies probably haven't done the greatest job in terms of communicating how they turn that into an opportunity rather than a threat," Duhra said. Analysts at J.P. Morgan flagged investor concerns that India's IT firms could miss growth targets as AI pushes clients to reallocate spending. The brokerage, however, noted that it's "overly simplistic" to assume that AI can automatically generate enterprise grade software and replace the value IT Services firms create across the cycle. "IT Services companies remain the plumbers in the tech world, and if enterprise software/SaaS is rewritten on a bespoke basis by agents - it will need significant services plumbing to work in enterprise context and minimize AI slop." Indian IT losses on Friday were led by a 2.4% drop in industry leader Tata Consultancy Services (TCS.NS), opens new tab, while Infosys (INFY.NS), opens new tab was down 2.2% and HCLTech (HCLT.NS), opens new tab dropped 1.2%. Reporting by Nandan Mandayam, Vivek Kumar M and Bharath Rajeswaran in Bengaluru, writing by Chandini Monnappa; Editing by Sonia Cheema Our Standards: The Thomson Reuters Trust Principles., opens new tab

FIIs turn big bear on IT stocks, pull out another Rs 11,000 crore in 2 weeks

Foreign institutional investors are rapidly exiting Indian IT stocks, pulling out nearly Rs 11,000 crore in early February and over Rs 74,000 crore so far in 2025, amid fears that advanced AI tools from firms like Anthropic and Palantir Technologies could disrupt traditional software services models. Foreign institutional investors (FIIs) are fleeing India's technology sector at an alarming pace, unconvinced that software services giants can survive the AI disruption threatening to hollow out their business models. FIIs pulled out Rs 10,956 crore from Indian IT stocks in just the first fortnight of February, as the release of new models from Claude and Palantir deepened fears that highly autonomous tools could disintermediate the very companies India's stock market has long treated as crown jewels. FIIs had already dumped Rs 74,698 crore worth of IT stocks through 2025, followed by another Rs 1,835 crore in selling last month, as investors are questioning the relevance of the business models of Indian IT services companies. Highly autonomous tools such as Claude Cowork and similar ones from Palantir threaten to disintermediate IT services companies, as a reduction in effort and compression in value could herald a wave of sharp revenue erosion. The Nifty IT index has cratered roughly 13% in the calendar year. Wipro is down 19%, LTIMindtree 22%, LTTS 14.5%, with Infosys and LTIMindtree also bleeding double digits. The IT rout stands in sharp contrast to broader FII behaviour this month. Foreign investors have actually turned net buyers in India overall to the tune of Rs 19,675 crore last fortnight after the announcement of an interim US-India trade deal that also eased pressure on the rupee. Capital goods stocks attracted over Rs 8,000 crore in foreign buying, financials Rs 6,175 crore, with oil and gas, metals, power, and construction also seeing inflows. FMCG and healthcare each saw outflows of over Rs 1,000 crore, but nothing close to the scale of the IT exodus. Also Read | Fear of the unknown: Is India's $250 billion IT industry facing its Kodak moment? "We believe these concerns are oversimplifying the role of IT services companies," global brokerage firm Nomura said, arguing that enterprises do not simply rip out complex technology stacks for unproven alternatives. "It is easier said than done that a SaaS product and IT vendors can be replaced by vibe-coded apps, given that enterprise IT buyers optimise for career risk -- reducing risks of failures -- and not costs and innovations necessarily." Nomura lays out three scenarios for where this ends. In the worst case of structural decline, revenue growth hovers between +2-3% or actually contracts, with price-to-earnings multiples collapsing to 10-12x as routine work gets automated and IT companies fail to replace lost business. In a middle scenario, companies pivot toward data and AI-led services, growth returns to high single digits, and multiples stabilise in the early 20s. In the most optimistic scenario, IT companies transform into AI orchestrators, shifting from selling effort to selling outcomes, with Cognizant recently flagging that the addressable market in this model expands from a $1.5 trillion pure tech services opportunity to a $4.5 trillion one of augmenting or replacing human enterprise labour. "The current sell-off in IT services stocks appears to be a case of front-loading of pains -- pricing in extinction of old business models before gains from new business models emerge," Nomura said. The brokerage notes valuations have corrected to below 12-year averages and at a 12-39% discount to five-year averages, with dividend yields of 4-5% likely to create a floor. Its preferred picks are Infosys and Cognizant among large caps, Coforge among mid caps, and eClerx among small caps. On their part, giants like TCS and Infosys have announced roadmaps to capture part of the multi-billion-dollar AI services opportunity. "IT Services companies have the advantage of contextual understanding of enterprises' complex environment, domain knowledge, and clients' trust; hence, they would remain relevant even in the AI era, in our view," Emkay Global said. (Ritesh Presswala) (You can now subscribe to our ETMarkets WhatsApp channel)

Fear of the unknown: Is India's $250 billion IT industry facing its Kodak moment?

Indian IT stocks are experiencing significant declines, sparking fears of an AI-driven "Kodak moment." While some analysts warn of direct exposure to AI-induced displacement, others argue the market is oversimplifying the role of IT services. Experts suggest AI could paradoxically unlock massive modernization opportunities, potentially fueling the industry's next growth phase. As Indian IT stocks bleed out, some down as much as one-third from their recent peaks, investors are asking something that would have seemed heretical just two years ago: can India's $250 billion technology services industry survive the AI revolution, or is it destined to become the next Kodak? Wipro shares have shed 33% from its 52-week high. TCS, the sector's anchor, is down over 30%. Coforge has lost more than 30% of its value. Infosys is down 25%, LTIMindtree 21%, while HCL Tech and Tech Mahindra are nursing losses of 18-19%. In a single month, stocks across the sector have lost up to 21% of their value and the bear calls are growing louder. Highly autonomous tools like Claude Cowork, Palantir's offerings, and a wave of similar platforms are threatening to disintermediate the IT services layer entirely. Bears argue that if AI enables enterprises to internally generate code, the foundational reason India's IT industry exists disappears. Motilal Oswal's Abhishek Pathak has put a number on the immediate exposure. "We estimate that 12-15% of sector revenue faces direct exposure to AI-driven productivity and displacement risk, with incremental pressure from third-party software efficiencies and automation layers," he said. He is candid about the longer horizon: "In the long term, answers to whether the industry goes extinct, thrives, or just survives won't come by easily." For now, Pathak is holding his estimates steady, waiting for more evidence before updating the model to reflect the current narrative. Self-built software, the kind that originally gave India's IT industry its reason to exist, has already shrunk from 35-40% of total software spend in the 1990s to just 14% today, as enterprises migrated to packaged software and vendor-led customisation. The fear is that AI violently reverses that trend, returning software creation to the enterprise and stranding Indian IT firms on the wrong side of history. Also Read | Infosys-Anthropic deal sparks fresh debate: Is AI now an opportunity, not a threat, for Indian IT? Nomura's Abhishek Bhandari, one of the more forceful voices pushing back against the bear case, argues the market is making a category error. "We believe these concerns are oversimplifying the role of IT services companies as they are the ones who reduce the friction between an enterprise and SaaS companies, and add services on top of that," he said. The idea that a SaaS product and IT vendors can simply be replaced by vibe-coded apps, he contends, ignores a fundamental truth about how large enterprises make technology decisions. "Enterprise IT buyers optimise for career risk -- reducing risks of failures -- and not costs and innovations necessarily." Compliance, regulatory, business continuity are not problems that a nimble AI tool solves overnight. "The current sell-off in IT services stocks appears to be a case of front-loading of pains -- pricing in extinction of old business models before gains from new business models emerge," Bhandari said. Drawing historical analogies of application development and maintenance in the 2000s, remote infrastructure management in 2005 and cloud in 2015, the analyst argues that each of these previous events had triggered comparable fears of obsolescence but IT companies ultimately navigated. Revenue models, he acknowledges, will change significantly, shifting from traditional fixed-price and time-and-material structures toward outcome-driven contracts. But change in the business model is not the same as extinction. The most striking counter-narrative to the Kodak thesis comes from Elara, which argues that AI paradoxically creates one of the largest services opportunities the industry has ever seen. There are more than 220 billion lines of COBOL code still running in production globally. Forty-five of the world's top 50 banks depend on it, as do insurance companies, telecoms, and airlines. Also Read | Infosys' $400 billion AI dream fails to arrest stock slide, but target prices go up to Rs 2,050 Modernising that code from COBOL to AI-ready architecture costs between $3 and $7 per line. A standard 30-million-line modernisation project that previously cost around $210 million over seven years can now be completed in three years for under $90 million, thanks to AI acceleration. Elara analysts say COBOL modernisation alone represents a $600 billion-plus opportunity for IT companies. The very technology that the bears say will destroy Indian IT may, in fact, be the catalyst for its next phase of growth. Infosys has already laid out a roadmap to capture a pie of the $300-400 billion AI services market opportunity. Emkay frames the current dislocation as primarily psychological. "We believe the correction largely reflects fear of the unknown," it said. "With the impacts hard to quantify, investors have trimmed terminal growth assumptions." At current valuations, large-cap IT services companies are trading at a free cash flow yield of 5-6%, with implied terminal growth of just 5-6%. The brokerage considers these levels as being excessively pessimistic for companies whose contextual understanding of enterprises' complex environments, domain knowledge, and client trust remain genuinely difficult to replicate. What will matter most going forward, Emkay argues, is management clarity on human-plus-agent offerings, business model transition toward outcome-based contracts, and consistent deal intake. A durable recovery, it cautions, will take time. Tata Mutual Fund offers investors navigating the uncertainty a grounding thought. "The actual impact of disruption to IT companies is gradual, which will take time to build additional revenue sources coming out of AI transition -- as happened in digital transformation," it said. The fund house notes that the market had already priced in a growth recovery in 2026 after two years of sluggish expansion; that recovery may now be delayed or shallower. The saving grace is that valuations have corrected to absorb that disappointment. With earnings expectations stabilising and valuations within a reasonable band, it argues, the risk of further valuation-led downside looks limited. Nomura's Bhandari also points to valuation support as a floor. Stocks are now trading below their 12-year historical averages and at a 12-39% discount to their 5-year averages. Free cash flow and dividend yields of 4-5% "will likely create a floor for stocks sooner than later." Guidance from Cognizant and Capgemini points to similar or improving organic growth in 2026 versus 2025, hardly the picture of an industry in terminal decline. Unlike Kodak, which resisted adapting to the digital revolution till it was too late, Indian IT companies face no such psychological barrier and are already deploying AI aggressively, internally and externally, building platforms, forging partnerships, and reshaping their talent models. The question is whether the adaptation is fast and profitable enough to bridge the valley between the deflationary pressures of today and the growth opportunities of tomorrow. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)

Infosys Unveils AI-First Framework to Tap $300B Market

Infosys today unveiled its AI first value framework to help global enterprises unlock AI value at scale, harnessing the power of its industry-leading generative and agentic AI suite, Infosys Topaz. This move opens a new frontier in IT services and will enable the company to tap into an incremental AI first services opportunity of USD 300-400 billion by 2030, according to a recent NASSCOM - McKinsey Report. Infosys is pivoting toward a comprehensive AI-first strategy designed to capture new demand across six key value pools while augmenting existing services to expand market share. This approach centers on AI Strategy & Engineering to move enterprises from experimentation to unified operating models, supported by Data for AI services that transform raw information into trusted, strategic assets. By integrating Process AI to redesign workflows through human-agent collaboration and utilizing Agentic Legacy Modernization to reduce technical debt, the framework ensures businesses can modernize their core infrastructure with minimal disruption. The strategy also extends into the physical and ethical realms to provide a holistic business transformation. Through Physical AI, Infosys enables the convergence of digital twins and robotics to create intelligent, real-time products and operations. Crucially, this entire ecosystem is underpinned by AI Trust, a dedicated layer that embeds responsible, secure, and ethical practices throughout the AI lifecycle. By combining these specialized domains, Infosys aims to help organizations scale their AI initiatives with confidence, meeting both high-performance business goals and rigorous regulatory expectations. Infosys is leveraging its purpose-built, composable and open agentic services suite Infosys Topaz Fabric and its collaboration with AI disruptors to deliver both AI augmented and AI First Services to clients. Infosys is collaborating with 90 percent of its top 200 clients on their AI journeys and has more than 4600 AI projects underway. It has developed over 30 new service offerings across the six value pools. Clients see Infosys as their preferred partner to unlock AI value and deliver business outcomes on revenue growth, cost optimization, and innovation. To learn more about our strategic AI-first collaboration with GE Vernova, watch this video. Nandan Nilekani, Co-founder and Chairman of Infosys, emphasizes that IT services firms are more vital than ever in the AI era, as enterprises require more than just automation to succeed. While AI agents enhance productivity, the true challenge lies in deep systems integration, robust governance, and the large-scale transformation needed to re-engineer core business models. Leveraging over four decades of experience in navigating technology shifts, Infosys positions itself as a critical orchestrator capable of managing complex AI ecosystems and unlocking the vast value inherent in the global AI services market. Building on this vision, CEO and MD Salil Parekh highlights the AI-First value framework as the strategic engine for capturing market share across six specialized value pools. He views AI as a powerful industry enabler that allows Infosys to serve as a preferred partner for end-to-end transformation, moving beyond simple experimentation to execution at scale. By aligning strategy with rigorous execution, the firm aims to help clients navigate the transition into AI-driven operations while maintaining the trust and security necessary for enterprise-wide adoption. Infosys is a global leader in next-generation digital services and consulting. Over 330,000 of our people work to amplify human potential and create the next opportunity for people, businesses, and communities. We enable clients in 63 countries to navigate their digital transformation. With over four decades of experience in managing the systems and workings of global enterprises, we expertly steer clients, as they navigate their digital transformation powered by cloud and AI. We enable them with an AI-first core, empower the business with agile digital at scale and drive continuous improvement with always-on learning through the transfer of digital skills, expertise, and ideas from our innovation ecosystem. We are deeply committed to being a well-governed, environmentally sustainable organization where diverse talent thrives in an inclusive workplace.

Infosys' AI push reassures on business strength, but valuation worries linger, says Sandip Agarwal

Indian IT firms' robust business models, honed over decades, are well-equipped to navigate AI disruption, according to analyst Sandip Agarwal. While valuations remain a concern, the sector's ability to reskill and adapt to client needs, coupled with significant AI opportunities, suggests resilience. Strong industry preparedness for AI implementation promises substantial revenue growth in the coming years. India's IT services sector continues to inspire confidence on the strength of its business models even as investors weigh valuations and long-term growth prospects in an AI-driven world. Insights from Infosys' recent AI Day and investor interactions have helped clarify many concerns. Speaking to ET Now, Sandip Agarwal, Sowilo Investment Managers said the company's presentations addressed confusion among investors. While he remains cautious on valuations, he sees the sector's fundamentals as robust. "I do not think there is any confusion that the business models are very robust, built over four-five decades. We are the software factory of the world, no one can execute at our pace, scale, and price. Business model-wise they are doing a great job. The opportunities they spoke about, the legacy that needs reskilling and AI alignment, are very big." "My only issue has been with valuations. Stocks have corrected 30-40% in the past year, so there is some comfort, but I would wait for more numbers before changing my view." Business models evolving with disruption Agarwal highlighted that Indian IT firms have historically adapted to technological disruption through reskilling and aligning with client needs -- a pattern he expects to continue with AI adoption. "Our business model is simple. We serve top Fortune 500 clients, recruit from campuses, train at scale, and reskill to client requirements. Every disruption slowed growth temporarily, then pent-up demand came back. The only change now is client effort may drop 20-30% due to AI." "If IT services growth continues despite reduced effort, my low-growth view may be wrong, and we could see a massive rerating. But structural changes -- broader market participation and smaller deals -- keep me cautious." Strong preparedness across peers On other major IT players, Agarwal expressed confidence that the industry is well placed for AI implementation and services. "We may not be in hardware or LLM development, but implementation of AI, building agents, and services -- we are the best. Large and mid-sized companies are doing phenomenal work. In 2-3 years, AI revenue could drive 30-35% for these firms." The road ahead While optimism around AI-led opportunities remains, investors are closely watching how quickly demand materialises and whether valuations reflect potential slower growth and increased competition. For now, the sector appears resilient, but conviction may depend on clearer revenue evidence in upcoming quarters.

Infosys shares in focus on AI-first framework to capture $400 bn services opportunity. What are brokerages saying?

Infosys shares are in focus after it unveiled Infosys Topaz, its AI-first framework, aimed at helping enterprises unlock AI value at scale. Analysts see an incremental $300-400 billion AI services opportunity by 2030. Motilal Oswal maintains a Buy rating, Morgan Stanley an Equal Weight rating, while Q3FY26 results show stable margins and 9% revenue growth. Shares of information technology major Infosys will be in focus heading into trade on Wednesday after the company unveiled its AI-first value framework to help global enterprises unlock AI value at scale, harnessing the power of its industry-leading generative and agentic AI suite, Infosys Topaz. The move opens a new frontier in IT services and is expected to enable the company to tap into an incremental AI-first services opportunity of $300-400 billion by 2030. Infosys is pursuing a two-pronged AI strategy: capturing fresh demand for AI-first services across multiple value pools while embedding AI into its existing offerings to deepen client engagement and expand wallet share. Nandan Nilekani, Co-founder and Chairman of Infosys, said: "IT services companies will play an even more critical role in the AI era. While AI agents can automate tasks and enhance productivity, enterprises still require deep systems integration, governance, trust frameworks, and large-scale transformation capabilities to fundamentally re-engineer their businesses. As an AI-first company with over four decades of experience guiding clients through technology shifts, Infosys is uniquely positioned to orchestrate AI across complex ecosystems and unlock significant value from the expanding global AI services opportunity." Motilal Oswal has reiterated its Buy call on Infosys, assigning a target price of Rs 1,850, implying 33% upside from current levels. The brokerage believes AI-native enterprise applications will continue to rely on legacy IT vendors' deep client relationships and delivery capabilities, supporting a gradual recovery in the sector. It highlights the emergence of a partnership ecosystem, including collaborations such as Infosys-Cognition, Infosys-Cursor, and Infosys-Anthropic, as critical to driving AI adoption at scale. Motilal Oswal expects CY26 to mark the bottom of the growth cycle, with a meaningful acceleration likely in 2HFY27 and FY28 as AI services move into scaled deployment. While near-term multiple re-rating may be capped by concerns around terminal value and AI-led disruption, the brokerage sees limited risk of earnings cuts and signs of a cyclical recovery in core businesses. Morgan Stanley has maintained its Equal Weight rating on Infosys, with a target price of Rs 1,760. The brokerage views the AI transition as largely opportunity-led, while flagging execution risks. It notes that AI-related services now contribute 5.5% of revenue and have been deployed across 90% of the company's top 200 clients. Morgan Stanley highlights the Topaz platform, along with its tools, agents, and partner ecosystem, as key strengths. While margins remain stable despite ongoing AI investments, with cost savings being reinvested, the brokerage says the overall size of the net AI revenue opportunity and the evolution of pricing models are still unclear. Infosys reported a 2% year-on-year (YoY) decline in consolidated profit to Rs 6,654 crore for the December quarter, compared with Rs 6,806 crore a year earlier, while revenue from operations rose 9% to Rs 45,479 crore. Alongside the guidance upgrade, the company retained its margin outlook at 20-22% for FY26. The company delivered a positive surprise by raising its constant-currency revenue growth guidance for FY26, lifting the full-year outlook to 3-3.5%, up from the earlier 2-3% band, signalling clearer improvement in demand conditions. Commenting on the performance, CEO and Managing Director Salil Parekh said the strong Q3 execution underscored the company's differentiated enterprise AI offerings under Infosys Topaz, which continue to drive market-share gains. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)

What lies ahead for Indian IT as brokerages reevaluate growth prospects?

Mumbai: As the outlook for Indian IT stocks turns hazy amid concerns that AI could disrupt the sector's business model, brokerages, including Nomura and UBS, assess what lies ahead for the sector. Nomura Uncertainty overdone: The brokerage said the disruption concerns oversimplify the role of IT services companies. "It is easier said than done that a SaaS product and IT vendors can be replaced by vibecoded apps, given that the enterprise IT buyers optimise for reducing risks of failures and not costs and innovations necessarily," said Nomura's analysts. "Tech adoption for newer and unproven technologies remains slow given concerns about compliance, regulatory, business and continuity risks." What should investors do: "The current sell-off in IT services stocks appears to be a case of front-loading of pains - pricing in extinction of old business models before gains from new business models emerge," said Nomura's analysts. "Transition period is painful, but high free cash flow and dividend yields (4-5%) will likely create a floor for stocks sooner than later." The brokerage said valuations are now trading below the last 12-year averages and at a 12-39% discount to last 5-year averages. Its top picks are Infosys, Coforge and eClerx. UBS Terminal Value: The IT stocks sell-off has brought terminal value - the long-term cash-flow assumptions that drive a large part of valuations - into focus as investors are concerned over long-term earnings prospects and growth trajectory of these companies. "Overall, while we believe there has been some near-term overreaction in our view, the questions around terminal growth cannot be ignored," said UBS's analysts. "Companies that accelerate the shift towards non-linearity, invest in IP/platforms, and help clients bridge the AI adoption gap will be the ones to defend terminal value." Adaptability remains key: The brokerage said it will keep a close eye on how quickly and effectively the IT services companies adapt to pricing model changes, headcount and acquisitions in response to the structural changes. "The prevailing tone in the market seems to presume a rapid, broad-based automation of enterprise workflows by agentic AI, rendering the traditional IT services model structurally weak," said UBS's analysts. "In our view, this isn't an unfair assumption, but what we believe is that we will see a model transition from linear staffing to solutions and platforms, to outcomes and to problem solving."

'No opportunity gap in AI, only execution risk': Infosys chairman Nandan Nilekani

Artificial intelligence does not present any opportunity gap and the real question is how businesses are using the opportunity, Infosys chairman Nandan Nilekani said, as he kicked off the IT firm's Investor AI day 2026 Tuesday. "In my view, there is no opportunity gap...Over the last 60 years, we have seen much faster technological change, and that has been a constant. Each time there has been a change, the way we address them has been different, and firms like Infosys have had to deal with them," he said. "Technology is moving faster than the ability of enterprises to deploy it. Implementing AI is hard; fundamentally it is about organisational change," Nilekani said. "This deployment gap is what we can help address," he said, adding: "As AI becomes a bigger part of the spend, the balance of advantage has moved towards build rather than buy...That benefits folks like us, who build these systems for them." Nilekani's comments come amid a $1 trillion global rout among technology stocks this month, wiping out also over $50 billion in market value from Indian IT stocks, as Anthropic and Palantir's AI offerings raised concerns over the software and IT industry's future earnings. AI playbook Chief executive Salil Parekh laid out six areas of focus for AI services for Infosys, which he said could potentially unlock $300-400 billion in AI-first services. "In terms of scale, it (AI-led services) is small and large parts of large clients," he said. "What we have now done is introduce a way to look at what we are doing through an AI-first value framework." The areas included AI strategy and engineering, Data for AI, Physical AI, AI Trust, Process AI and Agentic legacy modernisation. Parekh said the Bengaluru-headquartered company had 5.5% of its revenue in the third quarter (approximately $280 million) from AI services, and it is "growing at a robust pace". Infosys provides AI services to 90% of its large 200 clients, he said. Infosys' third-quarter revenue grew nearly 9% on-year to Rs 45,479 crore. Infosys is the third Indian IT firm to quantify AI-led earnings, after HCLTech and Tata Consultancy Services. TCS had reported $1.8 billion in annualised AI revenue, while HCLTech disclosed $146 million in AI revenue in the third quarter. Parekh acknowledged industry estimates that AI productivity would lead to compression in IT services revenue. "However, today we have a clear view that the AI opportunity is massive and will be the driving force in the coming years," he said. Parekh did not elaborate on how much of the revenue could get cannibalised. "We have not quantified the compression number for external (reference). But the expansion number is larger than the revenue compression," he said during a Q&A session. Nilekani highlighted the difference between greenfield and brownfield AI investments, where productivity in legacy projects that need to be modernised for the agentic era have scaled just around 1%, compared with 15% in newer projects. "A lot of productivity talk is greenfield. The real world is that companies invest billions in their systems. They have technical debt, data silos and don't have documents," he said. Infosys shares gained more than 1.8% to close at Rs 1,391.20 on the BSE Tuesday, when the company also announced a collaboration with Anthropic to develop and deliver advanced enterprise AI solutions to companies across telecommunications, financial services, manufacturing, and software development. The collaboration will begin in telecommunications with a dedicated Anthropic Centre of Excellence to build and deploy AI agents tailored to industry-specific operations, Infosys said in a press release. Talent transformation With the fundamental changes in how technology impacts the IT industry, Nilekani said talent will undergo a huge transformation. "Writing code will no longer be the objective for software technology professionals as AI fundamentally changes how software is built and deployed, he said. While 92 million traditional jobs stand to be displaced, with roles like QA testers, front-end developers, among others declining fast, Nilekani predicted that the AI-led services era will bring in 170 million new jobs, in roles such as AI engineers and forensic analysts. "The challenge will be how to take your workforce and make sure they are reskilled and ready for new business," he said, noting that enterprises will need new skills focused on AI engineering, agent orchestration, and managing non-deterministic systems, as operating models evolve. "Our approach has always been on re-skilling and making sure our team builds up, and we are recruiting. We will hire 20,000 graduates by year's end, and will hire another 20,000 next year," Parekh said.

AI disruption in IT: Nilesh Shah says it's too early to panic; also India's earnings are finally turning

Nilesh Shah of Kotak AMC believes artificial intelligence will transform India's IT sector gradually. He advises retail investors to let experts manage their investments during this period. Shah notes that India's market is currently priced fairly. He anticipates a return to double-digit earnings growth, supported by positive economic indicators. This outlook suggests a period of measured optimism for investors. The Kotak AMC MD sees the IT sector's AI reckoning as a drawn-out transition rather than a cliff edge, warns retail investors to let professionals navigate the storm, and flags a double-digit earnings revival that makes India's market "neither cheap nor expensive." Amid an ongoing global selloff in technology stocks and rising anxiety about artificial intelligence eroding white-collar employment, Nilesh Shah, Managing Director of Kotak AMC, is urging investors to resist the temptation to reach a verdict too quickly. Speaking to ET Now, Shah laid out a carefully balanced view: the AI-driven disruption of India's IT sector is neither a myth nor an imminent catastrophe -- and the broader Indian market, though not cheap, is pricing in a return to double-digit earnings growth that the fundamentals are beginning to justify. Shah was direct about the limits of what anyone can confidently say about AI's impact on IT right now. "As of today, it is too early to say which way the IT sector will get impacted by AI," he said. When Kotak's analysts speak with IT company management, the consistent refrain is that no customer has cancelled a contract because of AI -- at least not yet. That is a meaningful data point, though not necessarily a reassuring one for the long run. More importantly, he argued that India's top IT firms have navigated technological paradigm shifts before. The Y2K transition, the move from on-premise servers to cloud infrastructure when SaaS emerged, the shift from application development to application management -- each of these waves was predicted to marginalise Indian IT, and each time the sector adapted. Shah believes this track record deserves more credit than market sentiment is currently giving it. The nuance here matters enormously. If the bulk of a developer's value lies in understanding, communicating, and problem-solving -- rather than the act of coding itself -- then AI tools that automate code generation may augment productivity without eliminating headcount. That, at least, is the case the IT companies are making. Shah is not fully buying it, but he is not dismissing it either. His framework for picking IT stocks at this juncture is deliberately stock-specific. Small and mid-cap IT companies, he suggested, may actually be better placed than the large caps to leverage AI advantages -- they are more agile, less encumbered by legacy organisational structures, and quicker to pivot their delivery models. Large caps could surprise on the upside, but he treats those as exceptions rather than the rule. His overall stance: watch, gather evidence, stay selective, and avoid high-conviction calls in either direction. For retail investors sitting on losses in IT stocks accumulated over the past two years, Shah's advice was notably candid -- and somewhat sobering. He acknowledged that predicting when frontline IT names will recover is simply beyond anyone's current ability. "There are times when you have to accept that you do not know what is happening," he said -- a rare admission of uncertainty from a senior fund manager. His recommendation: delegate. Whether through mutual funds, Portfolio Management Services, or Alternative Investment Funds, retail investors are better served by professionals who are actively meeting company management and attending analyst days -- as Kotak's own team was doing, with analysts at a major IT company's AI day even during the interview. A concern gaining traction in global markets is that IT companies -- and hyperscalers -- may curtail dividends and buybacks to fund massive AI infrastructure investments, effectively transferring returns from shareholders to data centres. Shah pushed back on this with a first-principles argument rooted in valuation theory. "The smart investor knows that today's share price is the net present value of future cash flows," he said. If capital invested today generates meaningfully higher cash flows in the future, a rational market will discount that into the current price -- even if near-term shareholder returns dip. The caveat he stressed, however, is capital allocation discipline. Not every dollar spent on AI infrastructure will be well-spent. Shah pointed to the example of a commodity company that funded expansion through internal accruals with rigorous capital efficiency -- and delivered returns comparable to some of India's best FMCG, IT, and banking names. The lesson: markets reward intelligent reinvestment, but they will eventually punish undisciplined spending regardless of how compelling the strategic narrative sounds. Shah's most concrete and arguably most important observation concerned the recently concluded December quarter results. On the surface, Nifty 100 profit growth came in at a tepid 0.8% -- a figure that attracted considerable concern. But Shah flagged a one-time distortion: the implementation of a new labour code introduced a roughly ₹12,000 crore charge across corporates. Strip that out, and profit growth for the quarter jumps to a far more respectable 9.8% -- firmly in double-digit territory. The rupee depreciation created a secondary drag on reported numbers, and Shah expects a residual impact in the March 2026 quarter as well. But he is not concerned about the underlying trajectory. On-the-ground indicators -- from cement and automobile inventories to steel demand -- all suggest economic activity is picking up meaningfully. For the first time in six quarters, revenue growth has crossed into double digits. Shah expects this momentum to carry through both FY27 and FY28, sustaining the kind of earnings growth that the broader market is beginning to price in. Where does that leave overall market valuations? At approximately 20 times forward earnings, Shah's assessment is straightforward: the market is at fair value. It is not the screaming bargain that investors who missed the post-COVID rally might hope for, but it is a far cry from the frothy 24 times forward PE seen in September 2024 -- a period when earnings ultimately failed to justify that premium and the market corrected. With earnings now visibly recovering and the trajectory toward double-digit growth increasingly credible, holding at 20 times is a rational market response, not investor complacency. Shah's overall message to investors is one of measured patience. The AI disruption in IT will take time to fully reveal its winners and losers. The earnings recovery is real but still needs confirmation over the next two quarters. And the market, priced at fair value, is neither inviting reckless optimism nor warranting panic. In a climate of high uncertainty, that kind of sober clarity is itself worth something.

Mutual funds slash stakes in 9 of 10 IT stocks but Rs 4 lakh crore still at play

Mutual funds significantly reduced their holdings in nine out of ten major IT stocks in January, driven by concerns that AI will disrupt the traditional outsourcing model. Despite this selling pressure, the sector still holds substantial value, with managers offloading stakes in giants like Infosys and TCS, while showing some interest in Wipro. Indian mutual fund managers were seen retreating from the technology sector, dumping stakes in 9 out of 10 major IT stocks in January as fears mounted that artificial intelligence will permanently disrupt the outsourcing model that built the $250 billion industry. Mutual funds held Rs 395,404 crore worth of IT stocks as of January 2026, down from their December exposure of Rs 397,310 crore, as relentless selling gripped the sector, according to data from Prime Database. Oracle Financial Services Software (OFSS), Wipro, TCS and Coforge have all crashed at least 30% from 52-week highs, while Infosys is down 27% and HCL Tech has shed 18%. ICICI Prudential Asset Management Company led the exodus, offloading an estimated Rs 1,953 crore in Infosys alone during the month, according to the data. The fund house also dumped Rs 783 crore in Tata Consultancy Services (TCS) and Rs 623 crore in HCL Tech. Only Wipro saw buying interest, with both ICICI Prudential Mutual Fund and Quant Mutual Fund adding to their positions. According to estimates, net selling by all mutual funds in TCS reached Rs 302.53 crore in January, while Tech Mahindra saw Rs 966.71 crore in net outflows and HCL Tech Rs 817.35 crore. "We expect continued relevance for IT Services, but their position in the tech value chain is softening," said Ruchi Mukhija of ICICI Securities. "As AI-driven capital shifts toward infrastructure and AI software, services are losing their share of new tech spend. This prolonged period of subdued growth could drive a further derating in valuation multiples." Large-cap IT stocks currently trade at 18 times fiscal 2027 estimated earnings, well above historical troughs like the 11-12 times seen during the global financial crisis and initial Covid-19 outbreak, or the 15-17 times average of the fiscal 2013-2017 slowdown, Mukhija noted. Also Read | Beyond Rs 6 lakh crore selloff: How TCS, Infosys, other IT giants are reinventing to outlast AI disruption fears The structural threat is stark as generative and agentic AI are delivering immediate productivity gains of 20-40% across core tasks like coding, testing, support, maintenance, and business process outsourcing. This efficiency is eroding IT services' share of global tech spending, with ICICI Securities projecting an 8 percentage point contraction between calendar 2023-2026 as capital flows toward AI infrastructure and platforms. Pure-play AI leaders are scaling at "unprecedented rates," the brokerage said, with OpenAI and Anthropic reaching annual revenue run-rates of $20 billion and $14 billion respectively, backed by over 1 million and 300,000-plus enterprise customers. "While we believe that these platforms do not replace IT service providers, they are essentially weakening their bargaining power and relevance within the modern tech value chain," ICICI Securities said. "IT services may see a growth surge once AI-driven demand outpaces its deflationary effects -- but even three years into the AI wave, that tipping point remains elusive," Mukhija added. "Key monitorables include improvement in profitability per employee, share of new billing models and net new deal TCV." Motilal Oswal struck a more measured tone, arguing that current valuations may already reflect dire scenarios. The firm's reverse discounted cash flow analysis suggests the market is pricing in an average 10-year free cash flow compound annual growth rate of just 6.5% which is "among the lowest in the past two decades." "This compares to a 40% FCF CAGR in crisis eras such as GFC; a 13% FCF CAGR over FY16-19, when the sector decelerated sharply; and an 8.5% FCF CAGR during FY23-FY26, the latest period of deceleration," the brokerage said. On a free cash flow yield basis, large-caps are trading at 5.8% for fiscal 2027 and 6.2% for fiscal 2028 -- "levels approaching prior cyclical troughs." "The core question is whether AI represents a structural break to terminal growth assumptions or merely compresses growth/margins temporarily," Motilal Oswal said. "If this is a Kodak moment, then the quantum of downside from here is moot. If it is not, the market is currently pricing an FCF CAGR that is among the lowest in the past two decades." Both brokerages acknowledged IT services providers retain critical roles despite AI headwinds. According to ISG, 65% of IT leaders say managing existing data complexity hinders AI progress more than lack of innovation, creating demand for "AI-ready" data architecture that IT services firms can provide. "New AI tools have accelerated productivity gains but cannot entirely replace the need for IT services," ICICI Securities said, citing unavailability of AI-ready data at enterprise scale, need for data governance and accountability, and client reluctance to overhaul smoothly running core systems with probabilistic AI platforms. The brokerage sees potential for a "surge in net-new demand for ERP and legacy code transformations" as AI speeds up refactoring of mission-critical tech stacks. Key areas include legacy code modernization, ERP transformation, replacing point-solution SaaS with AI agents, building AI-ready data foundations, cybersecurity, and physical AI. "In the long term, answers to whether the industry goes extinct, thrives, or just survives won't come by easily," Motilal Oswal said. "In the short term, we stick to forecasting earnings growth for the next two years, which, as shown earlier, seems to be improving." JP Morgan analysts argue that it's overly simplistic to assume that AI can automatically generate enterprise grade software and replace the value IT services firms create across the cycle. "Indeed, IT Services companies remain the plumbers in the tech world, and if enterprise software/SaaS is rewritten on a bespoke basis by agents - it will need significant services plumbing to work in enterprise context and minimise AI slop," it said in a recent note. The brokerage is taking a barbell approach to buy deep value in largecaps like Infosys and TCS, along with growth champions such as Persistent and Sagility. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)

AI scare's $56 billion hit tests resilience of India's IT stocks

Indian tech stocks, including TCS and Infosys, have seen a significant market value drop due to AI fears. However, analysts and investors believe this selloff presents a buying opportunity. They argue that Indian IT firms are well-positioned to adapt, reskill, and capitalize on the growing demand for AI integration services, citing their history of technological resilience and strong financial positions. For investors bullish on India's technology services industry, the "AI scare trade" has created an opportunity to buy shares of companies that are able to survive the doomsday predictions. A gauge including Tata Consultancy Services Ltd. and Infosys Ltd. has shed $56 billion in combined market value since Anthropic PBC released a tool seen as a threat to their business models. The slide in Indian tech firms has stood out in Asia, a region whose large hardware industry is seen as indispensable to the AI ecosystem. Analysts at HSBC Holdings Plc and JPMorgan Chase & Co. said worries may be overdone, as Indian IT firms stand to gain from more customers requiring help integrating artificial intelligence into their operations. Investors including PPFAS Mutual Fund say the sector will be able to flexibly respond to changes. "Every time there's a technological shift, IT companies have adapted, reskilled their staff and ensured client needs are being met," said Raunak Onkar, research head and fund manager at $17 billion PPFAS, which added shares of Indian software makers to its portfolio last month. The companies have had success because they can quickly offer affordable knowhow, he added. The optimism shows how some investors are betting that the recent selloff in India's software companies has the potential to reverse. Technology stocks have been roiled globally by worries over the impact of AI tools on businesses, particularly, those that are built on winning productivity gains for companies. The NSE Nifty IT Index has slumped 15% since Anthropic's announcement earlier this month, on track for its worst month since March 2020. While software-heavy Chinese and Australian tech stocks have also been hit, losses have been a particular concern in the cohort that was seen as a flagbearer of India's growth story. The nation's IT outsourcers rose to prominence in the late 1990s by helping Western companies solve the Y2K bug, which had threatened computer chaos at the turn of the millennium. Since then companies have survived fluctuations in global growth from a series of crises, as well as the dawns of new technologies from mobile telecommunications to cloud computing. Now the software business model is seen at risk of obsolescence from the rise of AI and robotics. But analysts like Stephen Bersey at HSBC see such views as "flawed and illogical." "To optimally unlock the potential of the 'generated' information that AI produces, software is needed to orchestrate the overall digital interactions between AI and non-AI system enterprise components," he wrote in a note dated Feb. 9. "India based companies have had the ability to create and market enterprise class software for decades ... at scale." Skeptics are particularly worried about the potential for AI's productivity improvements to eat into earnings for IT outsourcers. For Phanisekhar Ponangi, co-founder of Mavenark Asset Managers Pvt., "the scare is real." "Over the last 30 years, IT businesses succeeded by saying they would improve productivity," he said. The industry is set for a big change as AI compresses project timelines and reduces the number of workers needed, while "the client will pocket the productivity gains." Others argue that the sector has seen what's coming and is prepared. Companies are increasingly talking about AI on their earnings calls, and even disclosing related revenues. TCS in January said AI solutions now generate $1.8 billion in annualized revenue for the company and are growing at around 17% quarter-on-quarter. Manu Rishi Guptha, a portfolio manager at MRG Capital, said the market is also overlooking two cushions for Indian IT firms: large cash piles that can fund shifts as AI disrupts business models, and a relatively young workforce that can adapt quickly. The stock meltdown may actually be an "opportunity in disguise," Guptha said, adding that the industry is seeing resilient order flows and share valuations have dropped. The Nifty IT gauge is trading at 20 times forward earnings estimates, the lowest level since April 2023. (You can now subscribe to our ETMarkets WhatsApp channel)

Is it hope against hope for Indian tech cos?

Anthropic's Cowork launch sparked a global software stock selloff, dragging Indian IT shares down as investors feared AI would kill services. But the panic overshot reality -- the real impact is far more complex than markets assume. Software services will never be the same again. Nevertheless, they will remain, so say those who are into it. When Anthropic dropped its Cowork tools, markets hit the panic button. Software stocks from the US to China slid hard. In India, IT majors were pulled into the downdraft: shares of Tata Consultancy Services, Tech Mahindra and others tumbled in sympathy. And have continued to fall. The logic was brutal. If global software companies were

The Great AI Job Shake-Up: It's not the tech, but the talent using it

Artificial intelligence is reshaping jobs globally. Experts predict a significant restructuring, with some roles disappearing but many new ones emerging. The key for workers is to adapt and acquire new skills. AI will enhance productivity and transform industries. Artificial intelligence (AI) is everywhere. In your inbox, your spreadsheet, your search bar -- and increasingly, in your workplace. The real question isn't whether AI will change your job. It's whether you'll change with it. Whether it makes you unemployed, forces you to upskill, or pushes you into an entirely new field is the real question. And on that, there is no single answer. Also Read: 'Machines are just 3 months away...': American AI startup CEO warns they could outsmart Nobel winners, work at 100x human speed Three years after ChatGPT's debut jolted the white-collar world, the global conversation has matured from breathless speculation to boardroom planning. Executives are redrawing organisation charts. Governments are recalibrating policy. Research firms are crunching data. The future of work in the AI era, it turns out, is not a binary of doom or boom. It is a messy, uneven restructuring. Here's how the people building, regulating, and studying AI see it playing out. The "stay calm and upskill" camp At the India AI Impact Summit, the dominant message from Indian industry leaders is not to panic. It is preparation. Sanjeev Bikhchandani, founder of Info Edge (which owns Naukri.com), framed AI as both "a threat and an opportunity." Some jobs will be lost, he acknowledged, but many will be created. His advice to young workers was direct: "Don't worry about policy. Just think what you should do so that AI does not make you lose your job and instead help you get a job." Learn the tools. Experiment. Set a target of mastering three AI platforms in three months. "If you don't do AI, AI will be done to you," he said. Sateesh Seetharamiah, CEO of EdgeVerve, called AI a "capability multiplier." Productivity gains are real, he said, but "ultimately there has to be a human being to take accountability." Jobs are not going anywhere, he argued. "Nature of jobs will change." Vineet Nayar, Founder-Chairman of Sampark Foundation and former CEO of HCLTech, offered a stark but symmetrical forecast, saying that 50% of current jobs may disappear due to automation, but 50% more could be created. The catch? Workers must identify and acquire the right skills. AI Impact Summit: Profit comes first, not jobs for IT companies, warns Vineet Nayar as AI boom could worsen job crisis Microsoft India and South Asia President Puneet Chandok described AI as "unbundling" jobs rather than eliminating them. Coding is currently the biggest use case, he said, but AI is rapidly embedding itself into enterprise workflows. "If you are not learning AI today, you are not learning anything." The subtext across these remarks is that disruption is inevitable, but survivable. The Data: Churn, not collapse Zoom out, and global institutions paint a picture of large-scale churn rather than outright collapse. The World Economic Forum's 2025 Future of Jobs report projects that 170 million new roles will be created between 2025 and 2030, while 92 million will be displaced, resulting in a net gain of 78 million jobs. Yet nearly 40% of employers expect workforce reductions where AI can automate tasks, and two-thirds plan to hire talent with AI-specific skills. The fastest-growing skills? Analytical thinking, resilience, leadership, and social influence, which are deeply human capabilities. The International Labour Organization estimates one in four workers globally is in an occupation with some exposure to generative AI. But because human input remains essential, most jobs are expected to be transformed rather than made redundant. PwC's 2025 Global AI Jobs Barometer goes further, saying that industries most exposed to AI are seeing nearly quadrupled productivity growth since 2022. Workers with AI skills command a 56% wage premium. Contrary to popular fears, job numbers and wages are growing in virtually every AI-exposed occupation, PwC finds. But there's a caveat. The International Monetary Fund (IMF) warns that AI could deepen labour-market polarisation. Vacancies demanding AI skills post higher wages, but employment may decline in occupations with high exposure and low complementarity with AI, posing risks particularly for youth and middle-skill workers. What this means is that while AI may expand the pie, it may also slice it unevenly. Also Read: AI will reshape jobs, not eliminate them: Microsoft India President Puneet Chandok The alarm bells Not all leaders are optimistic. Speaking at the World Economic Forum's annual meeting in Davos, IMF Managing Director Kristalina Georgieva said that AI will be like a "tsunami hitting the labour market". "We expect over the next few years, in advanced economies, 60% of jobs to be affected by AI, either enhanced or eliminated or transformed - 40% globally," she added, saying that it will affect younger workers and entry-level jobs the most. Mustafa Suleyman, CEO of Microsoft AI, earlier in February, predicted that "human-level performance on most, if not all professional tasks" being done by AI within the next year or 18 months. Accounting, legal, marketing, and project management -- anything involving "sitting down at a computer" -- could be automated, he said. In early 2025, Microsoft CEO Satya Nadella, while speaking at Meta's inaugural LlamaCon AI developer event, said that about 30% of the company's code is now written by AI. Speaking with Nadella, at the same event, Meta CEO Mark Zuckerberg added, "Our bet is sort of that in the next year probably ... maybe half the development is going to be done by AI, as opposed to people, and then that will just kind of increase from there." Anthropic head Dario Amodei believes highly advanced AI systems, which are capable of outperforming humans at most tasks and even exceeding Nobel laureates in certain forms of intelligence, could arrive as early as 2026. In his 2024 essay Machines of Loving Grace, Amodei wrote: "Many people are skeptical that powerful AI will be built soon, and some are skeptical that it will ever be built at all. I think it could come as early as 2026, though there are also ways it could take much longer." Also Read: AI is opportunity, not threat: Deven Choksey backs Indian IT stocks amid market selloff Later last year, Amodei told Axios that AI could wipe out half of all entry-level white-collar jobs. Amazon CEO Andy Jassy has been candid that extensive AI adoption will likely reduce parts of Amazon's corporate workforce over the next few years, despite the company building thousands of generative AI services and agents. At IBM, CEO Arvind Krishna acknowledged that AI eliminated a few hundred HR roles, but said overall employment remained constant as the company hired more programmers and sales staff. He dismissed extreme forecasts as a "reality distortion field." Alphabet's CEO Sundar Pichai, in an interview with BBC in late 2025, said AI will eliminate some jobs but evolve and transition others, meaning "people will need to adapt" rather than be replaced outright. He frames the shift not as destruction but as reconfiguration -- workloads will be redistributed, skills re-weighted, and career paths rewritten. But he also noted AI's broader role in everyday decisions: from healthcare choices to financial planning. This reflects a future where AI augments human judgment as much as it transforms jobs. Meanwhile, OpenAI's Sam Altman, during a live-streamed town hall event in January, said that the company plans to slow headcount growth because AI enables the company to "do so much more with fewer people." The goal, he suggested, is to avoid aggressive hiring followed by painful AI-driven layoffs. The radical abundance vision And then there are the futurists. Tesla and xAI CEO Elon Musk envisions a world of "universal high income," where AI and robotics eliminate scarcity and work becomes optional. He also noted that AI can become smarter than any human by the end of this year, adding that within five years, AI could surpass humanity's collective intelligence. Microsoft co-founder Bill Gates has suggested AI could enable shorter workweeks -- two or three days instead of five. In the next 10 years, advances in AI would mean that humans will no longer be needed "for most things" in the world, he told late-night host Jimmy Fallon in February. Google DeepMind CEO Demis Hassabis speaks of "radical abundance," provided wealth is distributed fairly. Also Read: AI won't steal jobs, it will create them, and India is ready to lead as 'agent of change', says Goyal So, will AI take your job? The honest answer? It depends. It depends on your sector. Knowledge workers -- translators, writers, analysts, customer service representatives -- are among the most exposed, according to research from Microsoft. Frontline roles in healthcare, construction, and logistics may grow as office jobs get automated. It depends on your skill set. AI skills command wage premiums. Analytical thinking and adaptability are increasingly prized. It depends on geography. The European Commission has warned gains may accrue mainly to high-skilled workers and certain regions without targeted support. And it depends on speed. Some CEOs like Suleyman foresee 18-month transformations. Most companies, according to McKinsey, are still in pilot mode. What is certain is this: AI will not leave the labour market untouched. "Every job will be affected, and immediately. It is unquestionable," Nvidia CEO Jensen Huang said at a conference in 2025. "You're not going to lose your job to an AI, but you're going to lose your job to someone who uses AI." The future of work in the AI era is unlikely to be a single dramatic collapse. It will look more like constant reconfiguration where roles are unbundled, workflows redesigned, skills rewritten in real time.

Two out of every three companies reduced hiring because of AI, 24% reported an increase: Report

According to the report, 65% of companies have reduced hiring after adopting AI, while 24% have reported an increase. The remaining 11% said AI has not led to any major change in workforce numbers, suggesting that companies are becoming more selective in hiring. Routine and entry-level roles are the first to feel the impact of artificial intelligence (AI) in India's IT sector, as companies increasingly use AI to automate tasks, according to 'AI and Jobs: This Time Is No Different,' a report on India's $250-billion IT industry. According to the report, 65% of companies have reduced hiring after adopting AI, while 24% have reported an increase. The remaining 11% said AI has not led to any major change in workforce numbers, suggesting that companies are becoming more selective in hiring. The study was conducted by the Indian Council for Research on International Economic Relations (ICRIER), supported by OpenAI. The report warned that India's IT companies are not hiring enough workers with skills in large language model operations and are not expanding their R&D divisions. They are also not investing adequately in training and upskilling. "The shortage of qualified AI trainers, the limited AI skills among new labour market entrants, and policy and regulatory uncertainty surrounding AI are challenges that must be urgently addressed if India's IT sector is to fully harness the power and potential of generative AI," the report said. The study, featuring 620 companies across the Indian IT ecosystem, found that data entry and clerical positions are the most affected, with 32% reporting a decline in demand for these roles. "Manual software testing, inspection and quality assurance jobs are also seeing reduced hiring, with 15% of firms citing a fall in demand," the report read. Which roles are losing to AI? Entry-level programming jobs are under pressure as well, with 13% of the companies surveyed reporting lower demand. "Tasks such as writing basic code, debugging and routine testing are increasingly being handled by generative AI tools, reducing the need for large junior teams," it noted. Overall, the report finds that the impact is not just limited to core technology roles but is also affecting non-tech functions. Demand has softened for creative production, customer support and administrative roles as AI tools automate content creation, customer interactions and back-office workflows. Human resources and talent management is the most affected non-tech function, cited by 31% of companies, as AI tools are increasingly used for screening, hiring, performance tracking and workforce planning. "Sales and business development (29%) are also seeing changes, with AI being used for lead scoring, customer insights and sales forecasting. Finance and legal functions (24%), as well as client services and account management (23%), are experiencing moderate impact as routine reporting, documentation and compliance tasks get automated," the report stated. Marketing, quality assurance and research functions are among the least affected non-tech divisions, according to the study. What skills work for IT? AI adoption is reshaping hiring priorities toward hybrid skill profiles that combine domain expertise with AI and data-related technical skills. The most in-demand skills are prompt engineering and generative AI capabilities (68%), followed by data analytics (36%) and data science and machine learning (35%), respondents said. Companies are also hiring more for cloud computing, cybersecurity, DevOps, database management and core software development skills. Despite the decline in routine roles, the study does not indicate an immediate employment crisis or mass layoffs. About 44% of the companies surveyed expect no major change in workforce size over the next two years, with hiring growth and reduction in teams remaining evenly split. The study also finds that "only 4% of IT firms have trained more than half of their employees in AI-related skills".

AI Impact Summit: Profit comes first, not jobs for IT companies, warns Vineet Nayyar as AI boom could worsen job crisis

India's Chief Economic Advisor highlighted AI's disruptive potential at a summit, noting vulnerability in sectors like tech support. While global AI leaders establish a presence, the nation is urged to cultivate foundational skills like reasoning and adaptability. The focus is on integrated AI, collaborative learning models, and transparent, risk-based governance for an AI-driven economy. Former HCL Technologies CEO Vineet Nayyar, while speaking at the AI Impact Summit in Delhi, warned that Indian IT companies will remain focused on profits rather than employment, as artificial intelligence threatens to disrupt myriad industries, from software development and factory work to music and the movies. "From an employment point of view I think it is very important for us to understand that Indian companies, including Indian IT companies, are going to be profit-driven and therefore if you believe that they are going to create employment you must be dreaming. Therefore, the question is how do we create employment in this environment, and that employment comes from mass scale startups, which is what this government has already doing," Nayyar said. The remarks comes India, with its large customer service and tech support sectors, could be vulnerable, and shares in the country's outsourcing firms have plunged in recent days, partly due to advances in AI assistant tools. In AI competitiveness, India ranks third globally, trailing the US and China, according to Stanford University's Institute for Human-Centered AI. Big names including OpenAI and Anthropic are setting up operations in India, courting enterprise customers, developers and government agencies. Google and Meta are expanding data centers to serve one of the fastest-growing markets for models such as ChatGPT, Gemini and Claude. Nvidia Corp., squeezed by US export curbs on high-end chips in China, sees India as a counterweight, though its chief pulled out of the summit at the last hour citing "unforeseen circumstances." Leading CEOs -- including those from Ford, Amazon, Salesforce, and JP Morgan Chase -- have proclaimed that many white-collar jobs at their companies will soon disappear. The same fears were expressed by Microsoft AI CEO Mustafa Suleyman who warned that AI could automate a large share of white-collar jobs within the next 12 to 18 months, as the company accelerates development of what he calls "professional-grade AGI". In an interview with the Financial Times, Suleyman said, "White-collar jobs, essentially those sitting in front of computers whether lawyers, accountants, project managers, or marketers... most of these tasks will be fully automated by AI within the next 12 to 18 months." Recently, Amazon, FedEx, and Ericsson and others have announced restructuring tied partly to automation and efficiency drives. Stock market investors have erased nearly $50 billion from the market capitalisation of IT companies since the start of 2025, amid growing concerns that artificial intelligence tools could dent the sector's future revenue. Analysts estimate that platforms such as Anthropic's Cowork plugins and Palantir's ERP software may shave off about 2% from annual revenue growth over the next three to four years. The negative sentiment intensified after US-based AI startup Anthropic earlier this month launched a new product designed for corporate legal teams. The company, which developed the Claude chatbot, said the tool can automate several legal functions, including contract reviews, non-disclosure agreement triage, compliance workflows, drafting legal briefs and generating standardised responses.

Beyond Rs 6 lakh crore selloff: How TCS, Infosys, other IT giants are reinventing to outlast AI disruption fears

Indian IT giants are actively reinventing their strategies to counter fears of AI-driven disruption, which has led to a significant market value sell-off. Companies are embedding AI into transformation programs, focusing on outcome-led growth, and leveraging internal AI tools to maintain margins and deliver value to clients. Indian IT stocks have witnessed heavy sell-off over the past week, with the sector shedding more than Rs 6 lakh crore in market value in eight sessions and the Nifty IT index sliding over 8%. The fear driving the trade is that generative and agentic AI could automate large parts of application development, maintenance and testing, which is the bread-and-butter work that has historically powered the outsourcing model of Indian IT companies. Yet beyond the headlines, not everything is doom and gloom. The country's largest software exporters are trying hard to convince clients and investors that AI won't "delete" the services model and are already rolling out plans to adapt to an uncertain future. Whether this proves too little, too late or simply not enough against the massive spending by US tech giants on frontier AI, is a debate that will play out over time. A recent JP Morgan sector note framed the current AI discourse as "discounted for extinction" but argued AI will also create net new areas of work -- from addressing multi-decade tech debt and modernising legacy code, to rewriting custom versions of SaaS where enterprises need more control, to building AI trust, reliability and operational services. The bank also noted that enterprise tech teams remain under-resourced versus business demands, which could keep a role for large services firms even in an AI-heavy world. HSBC, in a separate research note on software, took a different but complementary view. The AI versus software debate is often flawed because AI typically needs to sit inside enterprise software and day-to-day workflows. "In large organisations, AI is unlikely to run as a standalone "magic box". It usually has to work with data systems, access permissions, audit checks and risk controls, areas where large IT vendors and enterprise platforms still matter," the brokerage said. The market, however, needs an answer to a different question. Even if the work doesn't disappear, does AI reduce the money IT companies can make by sharply cutting the hours and people needed to deliver it? Motilal Oswal estimates 30-40% of IT services revenue is at risk from AI-led deflation concentrated in app development, maintenance and testing. If AI lifts productivity by 30-50% in those areas, Motilal argues 9-12% of sector revenue could be eliminated over three to four years, effectively a 2% hit to annual growth during the transition. The brokerage warns the risk could rise further if AI also compresses ERP migration and third-party enterprise software work, which it pegs at another 10-15% of industry revenues. JP Morgan tried to quantify what is already priced into the big stocks. The brokerage worked backwards from current share prices to infer what growth the market is assuming. It said current prices for TCS, Infosys and HCL Tech imply roughly 4%, 4% and 5.6% 10-year revenue CAGR, which is below the long-term average the sector once enjoyed. Its "uber-bear" scenario, where growth falls to 0% in perpetuity due to AI disruption, implies potential downside of more than 30% for the three names. The flip side is that if growth improves even slightly from today's "low single digit" reality, valuations may not be as stretched as the market action suggests, meaning a meaningful chunk of pessimism is already baked in. So what are the companies doing, in practical terms, to bend the outcome in their favour? The biggest internal shift is how India's tech giants are changing the way they deliver work. All large firms are using coding assistants and automation across the software lifecycle -- coding, testing, documentation, migration assessment, and even support functions like handling incidents and alerts. Sandeep Gogia, sector lead for tech and digital at Equirus Capital, said the big vendors are already using tools such as GitHub Copilot and similar assistants, while training engineers to work alongside AI-led agents. "They're training their manpower on AI tools and AI-assisted coding, and learning to work with AI agents, either their own or through partners," he said. The internal goal is to take the cost out, reduce turnaround time, and protect margins even as clients push for more output at the same or lower spend. The second shift is what they are selling. Instead of pitching AI as a lab experiment, firms are trying to embed AI into large transformation programmes, setting up cleaner data layers, modernising old applications, moving systems to cloud, and then helping clients use their own data safely with AI. That also includes building guardrails around security, privacy and compliance, because enterprises are unlikely to deploy AI widely if they fear data leaks or regulatory blowback. Gogia says this is where large systems integrators still have an edge. "This requires contextual knowledge, business logic and clarity about industry rules and regulations," he said. "That knowledge repository is more with large IT services firms." The third shift is partner strategy. While the big model makers and cloud providers control the chips, computing power and foundation models, several analysts said Indian IT firms are trying to control everything around it, which is implementation, integration, change management, and the long-term running of AI systems inside a client's business. Vinit Bolinjkar, head of research at Ventura, calls this a move away from pure "people-led" growth. "The transition is from a headcount-led model to an outcome-led, IP-led model," he said. He added that AI is already showing up in deal conversations and deal wins, even as companies acknowledge a reality investors are anxious about, where they see higher productivity will squeeze some older revenue pools such as traditional application maintenance. TCS is leaning into scale and execution resilience, but it is also signalling it wants to be more than just a services layer. The company has talked about building "full stack" capability -- from infrastructure to AI-led solutions -- so it can offer end-to-end delivery. It has announced a strategic investment in a 1 GW capacity AI data centre in India to support "sovereign AI" requirements, a theme that is gaining traction as enterprises and governments worry about where data sits and who controls it. TCS has also trained over 350,000 employees in GenAI foundational skills and held a large internal AI hackathon to push an "AI-first" culture. Bolinjkar said TCS looks strongest on "AI monetisation scale" and financial durability, citing an annualised AI revenue run-rate of about $1.8 billion. Analysts bet is that TCS can absorb pricing pressure better than peers because of its breadth and ability to industrialise delivery. Abhinav Tiwari, research analyst at Bonanza, also sees TCS as a steadier name in this transition. "TCS looks defensively strong," he said. However, he added that "much of its AI is embedded rather than sold as a standalone product line," which means the AI benefit may show up more in win rates and delivery efficiency than in clean, separate AI revenue disclosures. TCS has also been highlighting deal momentum where AI plays a central role, including large multi-year contracts where automation and optimisation are part of the value pitch. Infosys is pushing a more structured, productised AI narrative through its Topaz platform and an agent-based approach. It has said Topaz is increasingly being embedded in new large deals, and it has also talked about building more than 100 GenAI agents for client workflows, tools that can automate specific tasks within business processes. The company's strategy, as described by analysts, is to look less like a pure staffing engine and more like an enterprise AI partner that brings reusable components, frameworks and industry playbooks. "Tiwari called Infosys' approach more IP-led. "Infosys has the most productised AI story through Topaz," he said. "It is clearly linking AI to large deal wins and margin improvement." Infosys has also pointed to strong large-deal momentum, with AI now featuring in a growing share of client conversations, and has highlighted its ability to fund capability-building through strong cash flows. HCL Tech is aiming to differentiate through engineering and infrastructure-heavy AI use cases -- areas where AI meets networks, cloud infrastructure, industrial systems and the broader "build and run" stack. Bolinjkar said this positioning could work well in deployments where engineering depth matters. "In an AI world, enterprises don't just need models," he said. "They need resilient systems, security, and integrations across messy environments." HCL has been pushing its AI Force platform as a way to automate parts of the software development lifecycle -- coding, testing and documentation - and has cited meaningful productivity improvements for clients using such tools. It has also expanded capabilities through targeted moves in specific verticals, including telecom. Wipro remains the one analysts still treat as a turnaround. It has committed $1 billion over three years to advance AI, data and analytics, and has trained a large part of its workforce on AI skills. It has also positioned ai360 and its Lab45 innovation unit as engines to bring AI into client work, alongside a pipeline of investments through Wipro Ventures in early-stage AI startups. But its growth has lagged peers, and its AI monetisation metrics are less visible. "Wipro remains more of a turnaround bet," Tiwari said, while adding that TCS, Infosys and HCL Tech look like safer long-term beneficiaries "based on current evidence" and execution track records. The deeper debate is not whether AI will be used, but who is better placed to capture the economics, according to several analysts that ETMarkets spoke to. If AI reduces effort, clients will demand lower prices. That can hit revenue even if the number of projects rises. To offset this, IT vendors are trying to move up the value chain, where they are charging more for outcomes, platforms, managed AI operations, and risk controls, while using AI internally to preserve margins. For investors, key things to watch out is the management commentary around whether AI is actually supporting large deal wins. This can be already be seen from several statements from the recent third quarter. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)

Wrong to think that AI will eliminate IT services: Nasscom prez

Stock market investors have wiped out nearly $50 billion from Indian IT companies' market capitalisation since the start of 2025, spooked by fears of AI tools eating into the IT sector's revenue. Analysts estimate tools such as Anthropic's Cowork plugins and Palantir's ERP software will have a 2% hit on revenue growth each year for the next three-four years. While artificial intelligence (AI) advancements represent a new generation of productivity in software development, concerns that these tools will disrupt or eliminate technology services are "strongly wrong", said Rajesh Nambiar, president of industry body Nasscom. "Large enterprises are the primary clientele for IT companies, and they understand the enterprise context in which these systems operate," he told ET. He referred to the complexity of the enterprise technology landscape, which involves legacy systems with swathes of fragmented databases, cybersecurity and regulatory requirements, among others. "Concerns that such tools, whether it is Claude Cowork or something else, will eliminate technology services are strongly wrong," Nambiar said. Also Read: Claude Cowork's debut signals start of enterprise automation Stock market investors have wiped out nearly $50 billion from Indian IT companies' market capitalisation since the start of 2025, spooked by fears of AI tools eating into the IT sector's revenue. Analysts estimate tools such as Anthropic's Cowork plugins and Palantir's ERP software will have a 2% hit on revenue growth each year for the next three-four years. Nambiar, however, believes the $283 billion industry will be able to catch up. "Services firms played the role of systems integrators in the ERP (enterprise resource planning) era. Now, they have to play the role of an AI orchestration partner. There will always be an efficiency play coming from Agentic AI. There's no question. But if they can make that pivot, I don't see much risk," he said. The Nasscom president pointed to the IT services industry's value derived from domain or enterprise knowledge, which stands to get enhanced as AI tools gain traction. "Tech adoption among enterprises is moving from experimentation to large-scale deployment. When they do, service companies will play a critical role in making sure that they can help these companies make the transition," Nambiar said. Companies that have invested in platforms and people, and have got the right partnerships with global corporations, hyperscalers and the right assets acquired through mergers and acquisitions, are better placed than others, he said, adding that India's edge in talent availability is a huge factor. The tech industry body is gearing up to release its yearly strategic review during its Technology and Leadership Forum later in February. The Nasscom president also sought to allay fears around hiccups with the United States' H-1B interviews having any major impact on the US-focused IT industry. "It's not the most ideal situation, but at the same time, most IT organisations at this point have enough capacity developed locally that they can leverage all that. They will also participate in a limited way that makes sense for them," Nambiar said.

As AI clouds future of IT, Indian firms adapt to new game

ET Intelligence Group: Will Indian software companies rise to the challenge presented by new models of artificial intelligence (AI) that are transforming how enterprise solutions are implemented and delivered to clients? While the jury is still out, one thing is clear: domestic software exporters are far from unprepared. Both large and mid-tier IT firms have been exploring ways-through internal initiatives as well as acquisitions and collaborations-to adapt to evolving technology that can strengthen their offerings. The rapid progress in AI is expected to enhance efficiency across the vendor-client ecosystem by shortening project timelines and enabling faster delivery of products and services to target markets. Viewed in this context, the current sell-off in IT stocks appears more a knee-jerk reaction rather than a sign of any fundamental shift to defensive sectors. Last week, two major AI labs, OpenAI and Anthropic, released their latest models touting advanced capabilities to build software programming codes with greater accuracy than previous models. This sent ripples across tech and investor communities, forcing them to question the relevance of traditional software development companies that have so far thrived by employing legions of programmers. The tremors were felt on Dalal Street as the BSE IT index lost 15% in eight trading sessions to February 13, the biggest loss among sectoral indices on the exchange. While uncertainties over the exact impact of AI capabilities will likely loom on IT stocks in the short term, the medium-to-long-term scenario appears less gloomy given the agility shown by IT exporters in aligning their offerings with the latest technology trends. Apart from training staff on AI platforms and forging ties with global tech partners, Indian IT exporters have been quick to share productivity gains with clients, which should retain their relevance. The traction in new deal wins reported by IT companies over the past few quarters ensures that they continue to offer valuable services to clients. The aggregate total contract value (TCV) of order bookings by the top five Indian IT exporters, including Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, and Tech Mahindra, remained above $20 billion in each of the five quarters to December 2025. It rose to $21.5 billion in the December 2025 quarter from $17.4 billion two years ago. On the valuation front, too, comfort is setting in as the current selling spree is driving the trailing price-earnings multiples farther away from historical averages.

TCS shares crash 44% from peak to hit over 5-year low. More pain left for IT bellwether?

Tata Consultancy Services (TCS) shares plummeted to a five-and-a-half-year low amid fears of AI-led disruption, with its market capitalization also hitting a multi-year trough. The IT rout intensified following a plunge in Infosys and Wipro ADRs, as a new AI tool for legal tasks sparked concerns about industry-wide vulnerability. Shares of Tata Consultancy Services (TCS) plunged to a five-and-a-half-year low of Rs 2,585 on Friday as the IT rout intensified for a second straight session amid fears of AI-led disruption. The sharp decline dragged its market capitalisation down to Rs 9.60 lakh crore, also a multi-year low, slipping below the previous trough of Rs 9.77 lakh crore. With the latest fall, the stock is now down 44% from its all-time high of Rs 4,592, hit in August 2024. TCS has also dropped to its lowest level since September 22, 2020, when it last closed at Rs 2,523. Reflecting the shift in market hierarchy, State Bank of India (SBI) earlier this week overtook the IT bellwether to become India's fourth-largest listed company by m-cap. Also Read | Rs 6 lakh crore wipeout in 8 days! Is AI rewriting the rules for $250 billion Indian IT industry? The latest wave of selling followed an overnight plunge of up to 10% in Infosys and Wipro ADRs in the US. Sentiment weakened after US-based artificial intelligence startup Anthropic unveiled a new tool tailored for corporate legal teams. Anthropic, the maker of the Claude chatbot, said the product can automate a range of legal tasks, including contract reviews, non-disclosure agreement triage, compliance workflows, legal brief preparation and standardised responses. Why are investors rattled? At the heart of the market reaction is growing concern that AI could fundamentally reshape the competitive landscape for software and IT services companies, eroding both profitability and market positioning. Industries once considered relatively insulated from AI disruption, including legal services, data analytics and customer support, now appear vulnerable. If AI can automate these functions at scale, the vast IT services industry built around delivering them could face structural challenges. Should you be worried? Global brokerage JPMorgan has a message for panic-stricken investors: IT services firms are the indispensable "plumbers of the tech world" and their dividend yields have now hit levels last seen only during the global financial crisis and Covid-19. As Rs 5.7 lakh crore evaporates from the sector in just eight trading sessions and the Nifty IT index crashes 19% in the short span, the Wall Street giant is turning contrarian, declaring "deep value" buying opportunities in bloodied bellwethers Infosys and TCS. Also Read | Plumbers of the tech world! JP Morgan hunts deep value in India's IT bloodbath as stocks hit multi-year lows While AI tools like Claude Cowork spark fears of wholesale disruption, JP Morgan argues someone still needs to make enterprise software actually work, and that's where Indian IT services remain irreplaceable. "Free cash flow/dividend yields scream deep value and are crossing levels prior seen during market dislocation events such as GFC and COVID," the analysts wrote, recommending a "barbell approach to buy deep value in large caps" with overweight ratings on Infosys and TCS, alongside growth champions Persistent Systems and Sagility. With the sector trading at valuations previously seen only during major market crises, JPMorgan's scenario analysis suggests limited further downside even in bear cases, while any marginal recovery in growth could drive significant upside. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Kumar Rakesh bets on select IT names amid AI-led volatility

AI's impact on India's IT sector is unfolding in two phases: near-term automation causing deflationary pressure, followed by longer-term business transformation creating inflationary opportunities. Analyst Kumar Rakesh suggests markets may be overreacting to the front-loaded disruption, with a potential neutral long-term outcome. The debate around artificial intelligence and its sweeping impact on India's $250-billion IT services industry is no longer theoretical. From global boardrooms to Dalal Street trading floors, AI is now central to conversations about growth, margins and business models. In a detailed interaction with ET Now, Kumar Rakesh, Analyst, BNP Paribas laid out a nuanced view of how AI could reshape traditional IT services -- warning of near-term pressure but arguing that the longer-term picture may be more balanced than current market reactions suggest. Two Phases of AI Impact According to Rakesh, AI implementation in enterprises is unfolding in two distinct phases. The first is automation of business processes -- a continuation, but at a much faster pace, of what robotic process automation (RPA) had already begun. "So, we see AI getting implemented in enterprises in potentially two phases or two parts of the enterprise. The first is the business processes. Wherever things can get automated, they will get automated. This part of the work was already being incrementally automated. We used to see the work being done by RPA, where 10% to 15% productivity benefit was already being achieved. What now we are seeing is all of those kinds of productivity benefits are being accelerated through the use of agentic AI models." These are structured, repeatable tasks governed by predefined workflows -- ideal candidates for AI-led automation. The implication, he noted, is reduced manpower intensity and cost savings for enterprises. "And that starts getting automated using AI tools. So, that is the first part, which is the business processes getting automated and, as you can imagine, this would be more deflationary in nature because this is largely for cost saving, reducing the work intensity which was earlier, and this is disruptive in a negative way." The second phase, however, is potentially more transformative -- and positive. "The second part to this is the business transformation. Now, the enterprise data is sitting and trained in all the large language models and using that some of the new applications can be built, maybe hyper customisation for their customers and that is something which we believe will start creating new use cases, more businesses for IT services companies, and that will be inflationary in nature and disruptive in a positive way." In essence, while process automation reduces revenue pools in the short term, AI-led transformation could create entirely new revenue streams over time. Front-Loaded Disruption The challenge for the sector lies in timing. "Now unfortunately, the business process disruption is more front-loaded. We are already seeing the impact of that over the last one, one-and-a-half years. Some of it has already started showing up. But the business transformation inflationary new work will take longer because these models have to evolve a little more. Enterprises have to get more comfortable to use them and integrate them into their end businesses and that takes a little longer journey and potentially at some stage we would start seeing the benefit of the AI implementation as well for IT services companies." Rakesh believes the overall impact may eventually be neutral -- but far from linear. "Overall, we would believe that it would be neutral, but the impact will not be linear. First, there will be a deflationary pressure followed by inflationary pressure. Again, not every IT services company would be impacted equally. It depends on what they are more focused on, which part of the service line they are more focused on because the impact will not be linear and symmetric across all the parts of their services businesses and that is how we would expect this to pan out in the coming years." Are Markets Overreacting? The recent selloff in Indian IT stocks has reignited concerns about long-term terminal growth. While industry body NASSCOM has argued that fears around AI disrupting Indian IT services are misplaced -- suggesting instead that AI will augment capabilities -- investor sentiment remains fragile. Rakesh believes the sharp stock price reactions reflect deeper uncertainty. "So, we will have to first understand what exactly investors are looking at or sending a message in terms of these sharp stock price reactions. What they essentially are looking at and when we are speaking with most of the foreign institutional investors, they are incrementally getting concerned about what would be the terminal growth of these companies, what would be the long-term sustainable growth for these business models." He acknowledged that investors themselves lack clarity. "Now, the challenge which they are also facing, investors, is that we do not have a clear answer for this as yet that how actually this disruption plays out and who gets impacted what. And with that high level of uncertainty, at a time when the technology is evolving at a very fast pace, they are choosing to sit on the sidelines. They are trimming the position in this sector to sit on the sidelines to first better understand how this exactly plays out and then once they have a better understanding maybe come back and then start building position again in specific names who are the net beneficiary of this trend." Fear vs Greed Cycle Drawing parallels to last year's exuberance around data centre capex announcements, Rakesh described the current mood as part of a familiar market cycle. "What we have seen especially over the last week, 10 days, couple of weeks is I would call something very similar we saw last year. If you recall last year any company which used to come out and announce their significant capital expenditure for data centre building, the stock used to react very positively to that and then came a time when stocks stopped reacting to it and now we are in a phase when any new expansion in capex is seen negatively and stocks have started reacting quite sharply on the negative side to it." His conclusion: sentiment has swung decisively toward fear. "What I am trying to say is that there is a cycle of fear and greed which plays out and right now we are at an elevated level of fear. Any new frontier model getting launched or new version coming out is seen significantly as a negative to the sector, not just services but software as well. And we think that this is a cycle which will also peak at some stage. We would get to a point where any new model launches by these frontier models will not have any stock price reaction. We think that is a good trigger to watch out for and that will potentially start indicating this fear among investors has largely peaked and that could be a good entry point in the sector." Stock Picks in a Volatile Phase With valuations for some IT majors approaching multi-year lows, Rakesh sees selective opportunity emerging. "So, our top pick in the sector among the largecaps is Infosys and Tech Mahindra. Infosys, we see as one of the key beneficiaries of AI implementation because of the capabilities that they are building. We also see Tech Mahindra significantly transforming their business both in terms of revenue growth and margin and that should imply that they should grow faster than the overall industry. So, these two are our preferred pick among the largecaps. We like Persistent Systems among the midcaps. We think Persistent Systems is the key beneficiary of AI implementation. It is already showing up in the revenue performance which is starting to decouple from employee growth. So, we are already seeing some initial signs of that performance." His preferred large-cap bets include Infosys and Tech Mahindra, while among midcaps he highlighted Persistent Systems.

Infosys, Wipro and other IT stocks slide up to 6% as AI fears continue to hammer tech pack

Shares of IT giants Infosys and Wipro tumbled as much as 6% on Friday, extending recent losses. This decline follows a sharp overnight drop in their ADRs after Anthropic unveiled a new AI product capable of automating professional tasks, reigniting fears of margin pressure and weakened competitive positioning. Shares of IT majors Infosys and Wipro fell up to 6% on Friday, extending their slide as concerns over AI-led disruption weighed on sentiment. The weakness followed a sharp overnight drop of up to 10% in ADRs of Indian IT companies after Anthropic unveiled a new AI product capable of automating a wide range of professional tasks. The announcement revived fears that advanced automation could pressure margins and weaken the competitive positioning of traditional IT services firms. On the domestic bourses, Infosys declined 5.51% to Rs 1,310, while Wipro fell 3.37% to Rs 211.70. The IT index marked its third straight session of losses, after sliding 5.5% on Thursday. The weakness is also weighing on the broader IT pack, with stocks such as Coforge, Persistent Systems, LTIMindtree and HCLTech facing selling pressure. Anthropic, the company behind the Claude chatbot, said the product is capable of automating several legal functions, including contract reviews, non disclosure agreement triage, compliance workflows, legal brief preparation and standardised responses. This development has added to the already bearish sentiment surrounding software stocks, as investors increasingly worry about intensifying competition and margin pressure stemming from widespread AI adoption. Also read: Rs 6 lakh crore wipeout in 8 days! Is AI rewriting the rules for $250 billion Indian IT industry? Why are investors rattled? At the heart of the market reaction is a growing concern that AI could fundamentally reshape the competitive landscape for software and IT services companies, eroding both profitability and market position. "The fear with AI is that there's more competition, more pricing pressure, and that their competitive moats have gotten shallower, meaning they could be easier to replace with AI," said Thomas Shipp, head of equity research at LPL Financial, which has $2.4 trillion in brokerage and advisory assets. "The range of outcomes for their growth has gotten wider, which means it's harder to assign fair valuations or see what looks cheap." Industries once considered relatively safe from AI disruption, including legal services, data analytics and customer support, are now firmly in the crosshairs. If AI can automate these functions, the massive IT services industry built around delivering them could face existential challenges. Last week, international brokerage Jefferies was among the first to label the market reaction a "SaaSpocalypse", noting a rapid shift in sentiment "from 'AI helps these companies' to 'AI replaces these companies'." Jeffrey Favuzza from Jefferies' equity trading desk described the mood as outright panic. "Trading is very much 'get me out' style selling," he said, according to Bloomberg. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Rs 4.5 lakh crore wipeout in 7 days! Is AI rewriting the rules for $250 billion Indian IT industry?

India's massive software services sector faces a sharp downturn. AI advancements are causing significant market value losses for major IT firms. Investors are questioning the future of the traditional outsourcing model. The industry is undergoing a crucial valuation reset. The coming sessions will determine if the worst is over for these stocks. India's prized $250 billion software services industry is bleeding and the selloff that has already wiped out Rs 4.5 lakh crore in market value in previous 7 trading sessions shows little sign of letting up. As traders brace for another session of potential carnage, the Nifty IT index's brutal 14% plunge has left investors asking whether this is capitulation or just the beginning of a deeper reckoning. The damage has been indiscriminate and severe. Over the recent seven-day massacre, Infosys plunged 16.5%, TCS tumbled 15%, HCL Tech shed 13%, while Wipro and Tech Mahindra lost 10-11% of their value. TCS shares have now crashed 40% from their all-time high hit in August 2024, dragging the bellwether's market cap below Rs 10 lakh crore to levels last seen in November 2020. With billions more potentially at stake and volatility showing no signs of abating, the question haunting Dalal Street is no longer if AI will disrupt Indian IT, but how much further these stocks can fall before finding a floor. The trigger? Anthropic's Claude 4.6 and Cowork agents have ignited what some are calling a "SaaSpocalypse" -- a structural reckoning for an industry built on headcount-based billing. "AI is creating a structural shift in Indian IT services by reducing timelines and automating tasks, putting pressure on the traditional headcount-based outsourcing model," Vinod Nair, Head of Research at Geojit Investments warned. "Layoffs are likely in routine-heavy areas as fewer people will be needed to deliver the same outcomes. Even ERP implementation, as highlighted by Palantir's recent focus, is now vulnerable to AI disruption." "Clients are shifting toward outcome-based pricing," Nair added. "In the coming quarters, AI adoption could create headwinds for deal wins, potentially impacting topline, making close monitoring of deal flow essential to assess its real impact." The selling pressure was further compounded by stronger-than-expected US employment data, with a marginal decline in the unemployment rate, which has reduced expectations of an early rate cut by the US Federal Reserve. Dr. Ravi Singh, Chief Research Officer at Master Capital Services, acknowledges the sector faces real structural headwinds that could keep pressure on stocks. "There are real structural questions investors are asking -- how fast will traditional services slow down, what will happen to pricing power, and whether margins hold up as automation increases," he said. "So while some of the selling is an emotional reaction, the market is also pricing in slower growth and margin pressure." Singh noted multiple pressures converging simultaneously. "Global tech sentiment has turned soft, particularly after big U.S. tech names corrected, which naturally spills over into Indian IT. At the same time, clients in the U.S. and Europe are being more cautious with discretionary IT spends, especially on older projects, until budgets are clearer." Yet amid the panic, some market veterans see opportunity emerging from the wreckage though they caution the bottom may not be in yet. "The recent correction triggered by Anthropic's Claude 4.6 and Cowork agents marks a structural pivot, not an 'end of era' for software services," said Vinit Bolinjkar, Head of Research at Ventura. "Historically, every major automation wave -- from the transition to Cloud to the rise of DevOps -- was predicted to kill the sector, yet each eventually expanded the addressable market." Bolinjkar argues that while AI agents will commoditize manual coding and routine data entry, they simultaneously create massive demand for AI orchestration, enterprise-grade governance, and complex integration architecture. "The industry is rapidly transitioning from a labor-heavy 'effort-based' model to a high-margin 'outcome-based' model," he said. "At current levels, the Nifty IT index is undergoing a necessary valuation reset rather than falling into a 'value trap,'" Bolinjkar said. "The 13% fall since February 4th has largely baked in the 'SaaSpocalypse' fears. With dividend yields for the index now attractive at ~3% and balance sheets remaining cash-rich, the downside is increasingly protected." But even bulls acknowledge the pain may not be over. "We are entering a period of high divergence," Bolinjkar warned. "Investors must distinguish between 'AI-adapters' -- companies aggressively integrating agentic workflows to improve internal margins -- and 'legacy-laggards' still reliant on headcount growth." Singh sees the current phase as a painful but necessary recalibration, though he's not ready to call a bottom. "The AI angle has definitely been blown out of proportion. People tend to jump from 'AI can change how work is done' to 'AI will wipe out IT jobs tomorrow,' which isn't realistic. Indian IT firms are adopting AI tools themselves and selling AI-enabled services to clients, not standing still." However, he counsels patience over panic buying. "For long-term investors, this isn't a time to panic but a time to be selective. Weakness offers a chance to add to high-quality IT names that have strong balance sheets and solid global client relationships. Instead of buying everything indiscriminately, it makes sense to accumulate in stages on dips and watch for clear signs of stability." For traders, Singh's advice is even more cautious. "Waiting for a confirmed reversal pattern or technical support being respected before taking fresh positions can help manage risk." His diagnosis: "This sell-off looks like a valuation reset and sentiment dip, not a structural breakdown of the sector. Patience and selectivity matter more than ever." Bolinjkar offered a contrarian longer-term view for those willing to stomach what could be continued near-term pain. "Indian IT's deep domain expertise in critical sectors like BFSI and Healthcare remains a formidable moat that standalone LLMs cannot replicate without human-in-the-loop oversight. For those with a 2-3 year horizon, this volatility represents a seasoned entry point into the next generation of AI-native services." The coming sessions will reveal whether the worst is over or if the real pain is yet to come. (You can now subscribe to our ETMarkets WhatsApp channel)