The Tamesis
As investor concerns over the impact of artificial intelligence on business triggered a global sell-off, India’s IT services sector has been in the spotlight as the industry is over-reliant on software exports, which threaten to become redundant.
Shares of the Indian software exporter fell 0.6% on Thursday, a day after it slumped 6% in its worst trading session in nearly six years as AI-driven automation from U.S.-based Anthropic and Palantir fueled concerns about compressed project timelines and disruption to the industry’s labor-intensive business model.
Indian IT services giants such as Tata Consultancy Services (TCS), Infosys, Wipro and HCL Technologies are global outsourcing giants that employ more than 5 million engineers (mainly in India) to handle “back-office” technology work for multinational companies, especially those in the United States and Europe.
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These companies specialize in application services, including everything from custom software development to deploying and managing enterprise resource planning (ERP) software that unifies a company’s financial, human resources, supply chain and inventory operations. Typically, these services may involve multi-year contracts and are billed by the hour.
But new artificial intelligence tools launching this month could change that.
On Friday, artificial intelligence developer Anthropic Launch plugin Its Claude Cowork agents can automate many tasks in legal, sales, marketing and data analysis. Meanwhile, Palantir say this week Its artificial intelligence platform can drastically reduce timelines for complex enterprise projects that are the backbone of India’s $283 billion IT industry.
“As Indian enterprises integrate Claude into critical coding workflows, reliance on large vendor teams is likely to decline, squeezing billable hours and profits,” Systematix Group analyst Ambrish Shah told Reuters.
Anthropic’s advanced AI systems also threaten the entry-level talent pool of Indian IT companies by replacing routine development and testing tasks, he added.
“The Indian IT industry will face more pain ahead,” investment banking firm Jefferies warned, adding that Anthropic and Palantir’s announcements highlighted how artificial intelligence could erode IT companies’ high-margin application services revenue.
“With application services accounting for 40% to 70% of revenue, the company is under pressure to grow, and consensus growth estimates do not fully reflect this, posing downside risks to the valuation.”
Artificial intelligence risks trigger capital outflows
Among India’s large IT companies, Tech Mahindra, TCS, Infosys and Wipro account for a relatively high proportion of application services. Approximately 55%–60% of revenuewhile HCL Tech has the lowest exposure rate, about 40%.
Their shares fell between 4% and 7% on Wednesday and extended losses on Thursday.
Brokerage firm Motilal Oswal estimates that 9%-12% of industry revenue may disappear over the next four years due to AI-led disruption.
Jefferies expects AI to put pressure on revenue growth in the Indian IT industry over the next one to two years and believes deflation in traditional service line revenues will more than offset gains from AI-related opportunities.
Indian IT companies have been stepping up investment and reskilling in artificial intelligence even as weak global technology spending, delayed customer decisions and pricing pressure weigh on the industry.
Still, foreign investors dumped $8.5 billion worth of Indian IT stocks in 2025, a record high, given the risk of potential AI disruption.
India’s IT sub-index has fallen 17% since last year (including Wednesday’s sell-off) and is on track for its worst week in more than four months.
Schroders analyst Jonathan McMullan said: “Selling pressure in software and data analytics reflects deepening structural debate” told Reuters.
“The pace at which AI is advancing makes long-term valuations harder to defend, especially since AI tools allow companies to do more with fewer employees, threatening the traditional model of charging per user for software.”
The impact of artificial intelligence remains unclear
However, some analysts say the sharp sell-off may be overdone.
JPMorgan Chase said that while concerns about AI disruption are not unreasonable, it is illogical to extrapolate the rollout of certain tools into expectations that companies will replace every layer of mission-critical enterprise software.
Indian brokerage Kotak Institutional Equities described Wednesday’s decline as “severe panic over a bit of volatility.”
Amid the global sell-off, some analysts also believe that the success of these artificial intelligence platforms is far from guaranteed because they lack the specialized data that is crucial to industry players.
Mark Murphy, head of U.S. enterprise software research at J.P. Morgan, said the AI company’s new plug-ins will “replace every layer of mission-critical enterprise software” and “feel like an illogical leap.”
Even Nvidia CEO Jensen Huang eliminate fear Artificial intelligence will replace software and related tools, calling the concerns “illogical” and “time will tell itself.”
Software is seen as particularly vulnerable to disruption as tools like Cloud increasingly automate routine tasks that have long underpinned the industry’s pricing power.
“I think the software sell-off is overdone and the logic seems flawed,” said Talley Leger, chief market strategist at Wealth Advisory Group. told Reuters refers to global “software-mageddon”.
“Shouldn’t improved AI tools make it easier for us to create new, better software applications at lower prices, thereby increasing profits for software companies?”
- Reuters, with additional editing and input by Vishakha Saxena
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