Market Rout Wipes $22.5 Billion from Indian IT Stocks

Stock Market Impact: Worst Week in Four Months

The Bombay Stock Exchange (BSE) building in Mumbai. Indian information technology (IT) stocks suffered a steep selloff in early February, erasing an estimated $22.5 billion in market value over the week. The Nifty IT index plunged about 6.8% during the week – its worst weekly performance in over four months – significantly underperforming the broader market. Mid-week carnage was especially severe: on Wednesday the IT index tumbled nearly 6% in a single session, its sharpest one-day fall since the March 2020 pandemic crash. By week’s end, ₹1.5 trillion (approximately $18–22 billion) of IT sector market capitalisation had been wiped out marking a dramatic setback for India’s tech giants on Dalal Street.

“This sell off is less about earnings and more about anxiety. Markets are reacting to the speed of AI narratives, not yet to balance sheet damage. Indian IT firms are being repriced on fear of disruption, even as they remain central to how global enterprises actually adopt and operationalise AI at scale.”
— Ankit Kankar, General Manager, AI Spectrum India

All major IT services companies saw their stock prices slide. Infosys led declines with an ~8% weekly drop, while Tech Mahindra fell over 7%. Heavyweights TCS (Tata Consultancy Services) and Wipro each lost around 5–7% of their value, and HCLTech, LTIMindtree, Mphasis, and Coforge were down in the mid-single digits. Notably, Infosys and TCS both plunged about 7% in a single day during the worst of the rout. The sell-off was broad-based: all ten constituents of the Nifty IT index ended the week in the red. This rout snapped what had been a modest recovery in IT shares, and the Nifty IT index is now roughly 18% below its level at the start of 2025. It underscores just how abruptly market sentiment towards the Indian tech sector has soured.

AI-Related Anxieties Trigger the Decline

Illustration representing artificial intelligence and automation. The catalyst for this abrupt downturn was a wave of AI-related jitters that swept global markets. Investor anxiety spiked after U.S. startup Anthropic unveiled powerful new generative AI tools that sparked fears of disruption to traditional IT services. In late January, Anthropic released an upgraded version of its AI assistant (Claude Opus 4.6) tailored for financial research, claiming it can produce detailed analyses in hours instead of days. Days later, the company launched 11 new plug-ins for its enterprise AI platform Claude Co‑worker, enabling automation of a broad range of professional tasks across legal, sales, marketing, and data analysis functions. This announcement “reignited fears that artificial intelligence could undermine both the profitability and competitive moats of traditional IT firms,” as one market report noted. Essentially, Anthropic’s generative AI agents demonstrated an ability to handle work that forms the bread-and-butter of many outsourcing contracts – from routine coding and software maintenance to document review and data processing.

The timing compounded the shock. The Anthropic news coincided with similar claims from Palantir Technologies, which that same week touted that its AI platform could drastically slash timelines for complex enterprise tech projects. Together, these developments fueled a sense that AI-driven automation may advance faster than expected, threatening the labour-intensive delivery model of India’s $283 billion IT outsourcing industry. “The market fears [these AI tools] may replace IT services that are currently outsourced,” explained V.K. Vijayakumar, chief investment strategist at Geojit Financial Services. In other words, clients might soon do more in-house with AI, reducing the need to hire armies of external IT engineers. Such fears directly target the core revenue model of Indian IT companies – many of whom employ tens of thousands of young engineers to carry out repetitive back-office tasks for global clients.

Traders reacted swiftly to these signals. The selloff in Indian software exporters was part of a global rout in software and data-service stocks, triggered by Anthropic’s AI launch. As one analyst observed, sentiment swung almost overnight “from ‘AI helps these companies’ to ‘AI replaces these companies’,” prompting panicked “get me out” selling. Shares of Indian IT firms sank further on fear-driven momentum, even before any tangible impact of AI on their earnings could be confirmed. This knee-jerk reaction reflects a burgeoning belief that generative AI’s rapid progress could compress project timelines, squeeze billable hours, and even render some entry-level programming and process roles redundant. In short, the market began pricing in the risk that automation may eat into the very services that Indian IT outsourcers provide.

Company-Specific Performance and Responses

From Infosys to Wipro, India’s tech bellwethers all felt the heat of these AI anxieties. Infosys, the second-largest IT exporter, saw its stock tumble over 8% during the week – the steepest fall among peers – reflecting its significant exposure to the kinds of application development and maintenance services now under scrutiny. Tech Mahindra, which has a large workforce in telecom and enterprise software services, was next worst hit, down about 7%. Even market leader TCS (Tata Consultancy) shed roughly 5–6% of its value, as did Wipro, HCLTech, and mid-tier players like LTIMindtree and Mphasis. Importantly, these declines came despite many of the companies reporting relatively steady recent earnings. In fact, December-quarter (Q3 FY26) results for the top IT firms showed revenue growth in the mid-single digits and a noticeable uptick in AI-related deal wins, indicating that AI is also creating new opportunities[.

Ironically, just weeks before this selloff, several IT giants had touted their progress in embracing AI. TCS, for instance, disclosed it now generates an annualised $1.8 billion in revenue from AI-led services – a figure that jumped 17% quarter-on-quarter. Infosys CEO Salil Parekh noted that “AI adoption continues to gain strong momentum across our client base”, revealing that Infosys is working on 4,600 AI projects and has built over 500 AI solution “agents” for clients. Similarly, Wipro’s CEO highlighted that AI has become a “board-level mandate” for clients, with CEOs now driving AI investment to transform business models. Wipro has anchored its strategy on a unified AI transformation framework to deliver such projects at scale. These statements show that Indian IT providers are not passive in the face of AI – they are actively developing AI platforms (e.g. Infosys’s Topaz, TCS’s Cognix) and reskilling employees to stay ahead. In fact, TCS has reskilled over 300,000 of its staff in AI and machine learning concepts over the past year.

Companies also reported strong client interest in leveraging AI, somewhat countering the pessimism. Top IT firms have recently secured sizable AI-led deals and are rolling out domain-specific AI solutions in sectors like banking, finance, healthcare, and retail. For example, Tech Mahindra announced its highest deal bookings in five years, boosted by demand for digital and AI projects, and Infosys raised its revenue guidance modestly as clients re-started projects with an AI focus. This suggests a nuanced reality: while investors fear AI could cannibalise traditional IT services, the companies are simultaneously capitalising on AI as a new growth driver – helping clients implement AI and automation, which generates new streams of revenue. “Indian IT companies are integrating AI tools to improve productivity and reduce costs, and some large players have already won AI-related projects,” notes G. Chokkalingam, founder of Equinomics, who sees the recent selloff as overdone. In effect, firms like TCS, Infosys, and Wipro are positioning themselves as enablers of the AI revolution for their clients, even as the market worries they could be victims of that same revolution.

Broader Investor Sentiment in Tech and AI

The dramatic stock declines speak to a broader shift in investor sentiment towards tech services in the AI era. Over the past year, foreign investors had already been cautious on Indian IT stocks, and the latest scare accelerated that trend. In 2025, offshore funds pulled a record $8.5 billion from India’s IT sector amid concerns about AI disruption and slowing growth. By late 2025, foreign ownership of Indian equities had fallen to a 15-year low, with IT stocks accounting for nearly half of all foreign equity outflows This backdrop meant that sentiment was fragile even before the February AI scare. As soon as the narrative flipped to “AI might replace outsourcers,” institutional sellers did not hesitate to dump shares.

Market commentators describe an atmosphere of near-panic during the worst of the selloff. Jefferies, an investment bank, dubbed the episode a “SaaSpocalypse,” noting a rapid shift in mindset “from ‘AI helps these companies’ to ‘AI replaces these companies’,” and observing that trading had turned into “outright panic… ‘get me out’ style selling”. The phrase captures how quickly optimism about AI boosting tech firms morphed into fear of AI hollowing them out. A Schroders analyst likewise remarked that the selling pressure reflects a “deepening structural debate” about the industry’s future. He warned that “the speed of AI advancement makes long-term valuations harder to defend, particularly as AI tools allow businesses to do more with fewer staff”, undercutting the traditional model of billing clients for large teams of engineers. In essence, investors are grappling with whether we are at the start of an AI-driven paradigm shift in IT services that could structurally cap the sector’s growth and profitability.

Not everyone on the Street is so pessimistic, however. A number of analysts have urged caution against overreacting to early AI news. Brokerage Kotak Securities, for example, described the plunge in Indian IT shares as “plenty of panic over a little flutter” – suggesting the market had over-extrapolated the impact of a few new AI tools. JPMorgan’s software sector team argued it is “illogical to extrapolate” the launch of a single AI plug-in into an assumption that entire layers of enterprise software will be rendered obsolete overnight. Even Nvidia’s CEO Jensen Huang weighed in, calling fears that AI will fully replace traditional software “illogical” and suggesting that time will prove a more nuanced outcome. Some market strategists note that better AI tools could in fact enhance software firms’ efficiency and margins rather than destroy them. These more optimistic voices highlight that AI’s net impact on big IT providers remains uncertain – it could create as many opportunities as threats. But in the short run, it is the uncertainty itself that is unsettling investors, leading to heightened volatility.

Global Tech Selloff and Comparisons

The rout in Indian tech stocks did not occur in isolation – it mirrored a wider global tech selloff tied to AI revaluation. In the United States, the tech-heavy Nasdaq index fell about 1.4% on the Tuesday of that week, with software and data analytics firms losing an estimated $300 billion in combined market capitalisation. Companies involved in financial data and legal software were hit especially hard as investors feared their services could be replicated by AI. Notable examples included London Stock Exchange Group (a market data provider) plunging 13%, Thomson Reuters Corp. (a provider of legal and financial information) sinking 16%, and legal-tech firms like CS Disco and LegalZoom.com down 12% and 20% respectively. This global slide – whimsically dubbed “software-mageddon” by some – was triggered by the same Anthropic announcement that rattled Indian stocks. In other words, AI angst was a worldwide theme, affecting Silicon Valley and European tech shares alongside Bangalore’s IT majors.

Investors in other tech-heavy markets reacted similarly. Many U.S. and European software-as-a-service (SaaS) companies saw double-digit percentage drops overnight, as did IT consulting firms with large workforces. For instance, shares of Accenture and other global IT consultancies slumped in sympathy, reflecting concerns that if AI allows clients to automate tasks, it could impact outsourcing demand universally. The fact that Anthropic’s AI launch sparked a global rout underscores that this was not about any India-specific issue, but about how investors globally are repricing tech stocks in light of rapid AI advances. An analyst at LPL Financial observed that investors now fear “more competition, more pricing pressure, and shallower moats” for many software and IT service companies due to AI – which makes it harder to confidently value these companies. Essentially, a collective question is being asked across markets: are recent AI breakthroughs a threat to the incumbent tech business models, and if so, have stock prices been too high given this new risk?

It is worth noting, however, that the Indian IT sector’s selloff was more acute than in some other markets, possibly due to its unique profile. Indian IT firms rely on a labour-arbitrage model (lots of skilled engineers billing hours at lower rates), which is exactly what generative AI could disrupt. By contrast, some U.S. tech firms are themselves developers of AI or owners of proprietary software IP, so they might even benefit. This divergence explains why, for example, shares of Indian outsourcers fell 5–8%, whereas shares of big AI developers (like certain Silicon Valley firms) held up or even rose as capital rotated towards the perceived AI “winners”. Thus, while there was a common trigger, the fallout varied by sector: companies seen as AI disruptors fared better than those seen as potentially disrupted by AI. India’s IT sector unfortunately was cast in the latter role during this episode.

Reasons Behind the Market Correction

Multiple factors compounded to drive this market correction, going beyond just one AI news event. Key reasons include:

• Automation Threats: The immediate trigger was fear that generative AI could automate services that Indian IT firms provide, from coding to process management The notion that clients might do more with AI (via tools like Anthropic’s Claude or Palantir’s platforms) raised the spectre of slower revenue growth or even loss of business for outsourcers. This structural threat to the business model led to a de-rating of IT stocks
• Subdued Growth and Demand: Even before the AI scare, Indian IT companies were navigating a post-pandemic slowdown. After a boom in 2021–22, demand tapered as major clients, especially in the U.S. and Europe, cut discretionary IT spending amid economic uncertainties. Revenue growth for the sector had fallen to low single-digits in dollar terms, and some firms were seeing delays in client decision-making and pricing pressure. This soft backdrop meant valuations were vulnerable to any negative surprise.
• Valuation Concerns: Coming into 2026, Indian equities – and IT stocks in particular – were not cheap. The Nifty IT index had rallied off October 2025 lows, and many frontline tech stocks traded at relatively high price-to-earnings multiples despite muted earnings growth. “Stretched valuations” were cited by foreign investors as a key reason for selling Indian shares in 2025. When the AI news hit, it provided a clear catalyst to sell stocks that were arguably priced for a better outlook than was actually materialising. As one strategist noted, the rapid progress of AI makes it “harder to defend” lofty long-term growth assumptions for these companies.
• Global Macro and Cyclical Factors: Broader global factors also played a role. High interest rates and recession worries in the U.S. and Europe had made investors wary of tech stocks in general (as tech earnings are sensitive to economic cycles). Additionally, there were geopolitical and trade concerns (such as new U.S. tariffs on Indian imports) that created an overhang on India’s export sectors. These issues contributed to foreign fund outflows and had already put the IT sector on a weaker footing. So the AI scare acted as the spark on a bed of dry tinder – it wasn’t the sole cause of the fire.

In sum, the correction in Indian IT stocks can be seen as a market re-calibration. Investors are re-evaluating how much they should pay for companies that face slowing traditional growth drivers and emerging technological disruption. The confluence of expensive valuations, peaking post-Covid tech spending, and a new potential competitive threat in AI created a perfect storm for a sharp pullback. As one market veteran succinctly put it, “If the sector were posting double-digit growth, the correction would not have been this severe. Now there is even talk of de-growth.” In other words, with growth already scarce, the mere hint of a future decline (“de-growth”) due to automation understandably spooked investors.

Strategic Implications for Indian IT Firms

For India’s IT service providers, the recent scare is a wake-up call with strategic implications in the short to mid term. Firstly, it underlines the urgency for these firms to adapt and evolve their business models. If routine programming, testing, and BPO tasks can increasingly be handled by AI, Indian IT companies will need to shift further towards higher-value consulting, design, and innovation. Many of the big players are already moving this direction – accelerating efforts to become partners in clients’ AI and digital transformation, rather than just code factories. We can expect to see companies doubling down on building their own AI platforms, tools, and proprietary IP that add value on top of generic AI (for example, Infosys’s Topaz AI platform, or Wipro’s investment in AI-powered solutions). These offerings can help protect margins and give clients reasons to continue relying on IT partners.

Another likely strategy is targeted acquisitions and partnerships. Industry experts anticipate that Indian IT firms will respond to the AI challenge by buying smaller AI startups or specialist firms to quickly acquire capabilities. Indeed, acquisitions have historically been used to fill gaps in new technologies. We may also see deeper partnerships with global technology providers – for instance, Indian firms aligning with cloud and AI giants like AWS, Microsoft, Google, or Nvidia to jointly develop enterprise solutions. Such collaborations can help Indian vendors stay relevant as implementation experts for the latest AI technologies. An example of this is how Infosys integrated its Topaz AI offerings with AWS’s cloud services to deliver joint solutions. By partnering within the ecosystem, Indian IT companies ensure they are part of the AI wave, not left behind it.

Crucially, firms will also focus on workforce transformation. The traditional pyramid model of tens of thousands of entry-level engineers may need rethinking. Companies are already massively upskilling their employees in AI, machine learning and cloud technologies – as noted, TCS reskilled 300k employees in 2025 alone. This is both an offensive and defensive play: offensive in building new capabilities to offer clients, and defensive in making their workforce more efficient so they can offer competitive pricing even as automation takes over simpler tasks. We may see a slowdown in fresh hiring for low-skill roles, with more emphasis on hiring (or retraining) for specialised AI talent and domain experts who can work alongside AI tools. In the short term, such training investments may squeeze margins, but they are vital for long-term survival. As one industry CEO observed, “organisations are reshaping priorities as AI influences how they plan, invest and operate… AI is now a standing board-level mandate” – Indian IT vendors must mirror that mindset internally.

From a client service perspective, Indian IT firms will aim to reposition themselves as strategic partners in the AI era. Rather than selling manpower alone, they will sell outcomes – for example, contracts where fees are tied to efficiency gains delivered by AI automation, a trend that is already emerging in new deals. They will focus on offering end-to-end solutions that blend domain knowledge, data, and AI, thereby embedding themselves in clients’ critical operations. The big Indian providers have an advantage here: deep client relationships across industries. We are likely to see them leveraging those relationships to co-create AI solutions unique to each client (for instance, developing custom AI models trained on a client’s proprietary data, which an outside product company cannot easily do). In the medium term, this could even lead to new revenue streams such as platform-based services or subscription models, moving away from pure headcount-based billing.

In summary, the strategic imperative for Indian IT giants is clear – disrupt yourselves before you get disrupted. The recent market scare, while painful, could spur faster innovation and necessary changes. As analyst Arun Malhotra noted, companies will take measures to address these challenges and “surely… we don’t foresee the glory days of the IT sector… returning soon”. That implies a period of more measured growth but also an opportunity for those who successfully reinvent. The firms that thrive will be those that embrace AI as a tool to enhance productivity (thus maintaining margins even under pricing pressure) and simultaneously carve out new avenues where human expertise remains indispensable. Indian IT’s future might feature slimmer workforces delivering more value – a shift to quality over quantity in services.

Reactions from Analysts and Institutional Investors

Analyst opinion is divided, reflecting the uncertainty of this inflection point. On one side are those sounding alarms: for example, Jefferies cautioned that Anthropic’s and Palantir’s advances could “erode high-margin application service revenues”, noting that application services form 40–70% of Indian IT firms’ turnover. Their research suggests consensus growth forecasts haven’t fully priced in this risk, implying downside for both earnings and valuations if clients start trimming outsourcing due to AI. Domestic brokerage Motilal Oswal estimated that about 9–12% of industry revenues might be eliminated over four years thanks to AI-led efficiencies – a significant hit in an already low-growth environment. It’s worth noting that even before this incident, some market watchers argued that Indian IT needed a reset. Girish Pai of Nirmal Bang Securities (in an earlier commentary) called the sector “structurally challenged” by automation and urged investors to moderate their return expectations. Such views have gained more attention now.

On the other hand, a cohort of analysts see the selloff as overdone and mainly sentiment-driven. Centrum Broking’s Piyush Pandey labelled it a “knee-jerk reaction,” pointing out that AI tools “have been in the works” for some time and are a natural evolution of the industry. In his view, these technologies are “not expected to materially disrupt the industry as of now”– implying that in the near-term, business will carry on as clients experiment cautiously with AI rather than immediately slashing outsourcing. JPMorgan’s Mark Murphy likewise maintains that enterprises will not risk replacing mission-critical systems wholesale with unproven AI overnight. Indian brokerage Kotak Institutional Equities agreed, saying the panic was disproportionate to the news at hand. Notably, some long-term investors appear to be using this dip as an entry point, suggesting they believe the sector’s fundamentals remain intact. “Indian IT companies are already gaining from clients’ willingness to fund AI projects despite cuts in other spend” one report noted, highlighting deals that TCS, Infosys, and Wipro have recently won in AI and cloud services. This camp argues that far from being victims, Indian IT firms could be beneficiaries of the AI wave by helping the world implement AI – and that the market will recognise this once the dust settles.

Institutional investor reactions also vary. Some global funds have clearly reduced exposure to Indian tech – as evidenced by the heavy foreign selling last year and apparently during this episode as well. But domestic institutional investors (Indian mutual funds, insurance companies) have been buying on dips, providing some support. Domestic players often take a contrarian view when foreigners sell en masse, based on the belief that India’s long-term outsourcing story remains solid. Additionally, we saw commentary from sovereign funds and pension funds (through media reports) suggesting that if valuations correct a bit more, Indian IT could become attractive again for its stable cash flows and high return on equity – factors that haven’t changed. In essence, there is an emerging split: short-term traders and trend-followers are bearish, but long-term fundamental investors are more sanguine, viewing AI as just the next challenge to navigate in an industry that has weathered many technology shifts.

Outlook: Recovery Signs and Next Quarter Prospects

Looking ahead, the critical question is whether this selloff is a temporary scare or the start of a protracted downturn. There are early signs that it may be overdone in the short term. By the end of the tumultuous week, some stability returned – Friday’s fall in IT stocks was a more modest ~1.5%, and the broader Nifty 50 index actually ended that week with its best performance in three months. This suggests that investors may have begun bargain-hunting after the indiscriminate selling. G. Chokkalingam of Equinomics expects IT stocks to “rebound in the coming months”, arguing the current panic selling does not reflect the sector’s continued profitability and the proactive steps companies are taking. Indeed, the valuation reset has been swift – by some estimates, the Nifty IT index’s forward P/E has fallen from around 25x to closer to 20x after the slide, potentially making the risk-reward more favourable assuming earnings hold up.

In the upcoming quarter (Q4 FY26), management commentary and deal pipeline data will be closely watched for clues of any AI impact on client behaviour. So far, there is little evidence that major clients are cancelling contracts or refusing new deals due to AI; if anything, many clients are engaging their IT partners for AI pilot projects. Infosys, for example, reported $4.8 billion in large deal signings last quarter with a strong AI component, and Tech Mahindra saw a 47% YoY increase in deal wins, indicating robust demand still exists. These deal wins should translate into revenue over the next few quarters, lending support to earnings. Moreover, some macro factors could turn favourable: interest rates are expected to peak and possibly decline in the U.S. later in 2026, and India just received a long-awaited trade deal that could improve business sentiment. Such developments might help restore foreign investor confidence. Analysts at Elara Capital anticipate a revival of inflows in the March quarter of 2026 as inflation eases and public capex in India picks up. If foreign selling abates and even a trickle of buying returns, that would remove a significant overhang on IT stocks.

That said, most observers agree the sector is unlikely to return to the heady growth of a few years ago. “We don’t foresee the glory days of the IT sector… returning soon,” as one fund manager put it bluntly. The outlook is for modest growth at best, with continued volatility. Even companies themselves have guided for only low- to mid-single-digit revenue increases and have been cautious in their outlooks. In the near term, management teams will try to reassure investors that AI is more friend than foe – we can expect to hear updates on how many AI deals they are winning, productivity gains from AI internally, etc., in their quarterly calls. If those narratives are convincing and backed by numbers (e.g. Infosys raising its full-year guidance slightly, or TCS reporting a growing AI order book), it could steady nerves.

It’s also important to remember that long-term fundamentals of India’s IT sector – cost competitiveness, a large skilled talent pool, and strong client relationships – remain intact. These firms have navigated transitions before (mainframes to client-server, on-premise to cloud, etc.) and emerged stronger. As HDFC Securities noted, AI-led contracts are likely to drive a sector recovery in 2026 even if legacy services face pricing pressure. In essence, new tech will create new revenue even as it disrupts old streams. The next quarter or two might remain choppy as the market seeks clarity on AI’s real impact. But if Indian IT companies demonstrate that they can participate in the AI boom (for example, by helping a major bank deploy AI and signing a multi-million-dollar deal for it), then sentiment could swing back positively. Some contrarian investors even argue that Indian IT could become a surprise hedge if the “AI bubble” in hyper-valued tech stocks bursts – the reasoning being that money would rotate back into more reliably growing, reasonably valued service companies. That is speculative, but it underlines how quickly narratives can flip.

In summary, while the recent AI-driven selloff delivered a jarring shock, it may prove to be a market correction, not a demise. The coming quarters will be crucial for Indian tech majors to demonstrate resilience – through steady earnings, proactive adaptation, and communication to assuage investor concerns. Any signs that revenue growth is stabilising (or that AI is opening new opportunities) could catalyse a recovery in stock prices. Conversely, any missteps or disappointments could prolong the pain. For now, cautious optimism is warranted: the sector has entered a transitional period, but it is far from irrelevant. Indian IT companies have a track record of reinventing themselves, and many analysts believe they will do so again in the face of AI – even if the days of effortless double-digit growth are behind us.

Implications for Hiring, R&D, and Client Services

One clear implication of this episode is its impact on talent strategy and R&D focus within Indian IT firms. The spectre of AI replacing lower-level jobs means companies will likely recalibrate their hiring. We could see a slowdown in mass recruitment of fresh graduates for routine coding or testing roles – traditionally a staple of the industry’s pyramidal workforce. Instead, hiring will pivot towards profiles that AI cannot easily replicate: data scientists, AI model trainers, domain consultants, cybersecurity experts, and so on. Existing employees in repetitive roles may be upskilled or redeployed. The encouraging news is that companies anticipated this shift: most large IT players had already implemented major re-skilling programmes over the last 1–2 years, training staff in cloud, AI, analytics, and agile methodologies. This not only boosts productivity (allowing the same number of people to deliver more value), but also helps mitigate potential job losses by making employees capable of working alongside AI tools rather than being replaced by them.

In terms of research and development (R&D), expect significantly greater investment in automation and AI capabilities. Indian IT firms historically spent a modest percentage of revenues on R&D, but that is changing. Boards have approved higher budgets to develop in-house AI solutions, intellectual property, and innovation labs. For example, companies are creating AI frameworks for code generation, automated testing, chatbot support, etc., which they can deploy on projects to reduce effort and differentiate their offerings. Some firms are also collaborating with academia and startups on research into AI ethics, model explainability, and domain-specific AI (like AI for insurance, AI for retail supply chains, etc.), recognising that domain context plus AI is where they can add unique value. All this R&D focus is aimed at ensuring they remain indispensable to clients’ tech roadmaps. If Indian IT companies can provide ready-made AI solutions and the expertise to implement them, clients are more likely to rely on them rather than try to do everything internally.

For client services, the implications are profound but largely positive. Indian IT partners will increasingly serve as AI consultants and integrators for their clients. Many enterprise clients do not have the scale or knowledge to deploy AI at scale – this is where TCS, Infosys, et al. come in. We are likely to see new service lines emerge, such as “AI advisory”, “AI Ops” (AI-augmented IT operations), and dedicated AI project teams on client sites. Contracts might shift from pure time-and-materials to more outcome-based models, as mentioned, which could actually strengthen partnerships as vendors become more aligned with client results. The downside is that if routine work volume decreases (say, fewer people needed for manual software testing because AI does a chunk of it), billing could suffer unless replaced by higher-value work. Therefore, account managers will be focused on up-selling AI projects to maintain account revenue. Already, many clients are showing “more willingness to fund AI projects” even as they cut back other IT spending, which suggests Indian IT firms can offset declines in legacy services by capturing these new budgets.

From a human resources perspective, the workforce composition will evolve. There may be fewer entry-level roles and a thicker middle layer of highly skilled engineers and data specialists. Training and continuous learning will become a permanent part of job descriptions – something companies like Wipro have acknowledged by establishing AI academies and incentivising employees to earn new certifications. Culturally, an interesting shift is happening too: where once the measure of success was the number of people on a project (headcount being revenue), now success might be delivering the same project with fewer people but more technology. This means employees will be encouraged to innovate and automate within projects, rather than fearing that doing so cuts their own job – a mindset change that management will have to foster.

Lastly, clients will demand more in terms of innovation and productivity. The days of throwing people at a problem are waning; clients want to see their IT partners bring ideas to reduce toil through technology. Indian IT firms that proactively bring AI solutions to clients – for example, automating a report generation process or implementing an AI customer support agent that reduces call volumes – will stand out and likely win more business. In contrast, those that stick to old models could lose relevance. Fortunately, the big players appear to understand this. As Wipro’s CEO noted, CEOs of client companies themselves recognise AI’s ability to “unlock productivity and create lasting competitive advantage”, and they expect their IT vendors to help achieve that. This alignment at the top levels means Indian IT companies are being invited to co-create the future rather than being shut out of it.

In conclusion, the $22.5 billion wipeout in market value, while alarming, may serve as a catalyst for India’s tech industry to accelerate its next phase of evolution. Investor sentiment has unquestionably been shaken by AI-related concerns, but it is spurring a healthy re-examination of strategies and forcing companies to sharpen their value proposition. The leading Indian IT firms are responding by innovating, upskilling, and reshaping services – actions that should, in time, allay investor fears. There will be bumps along the way, and perhaps the era of easy growth is over, but the sector’s resilience should not be underestimated. As the dust settles, analysts like Chokkalingam remain optimistic that current valuations more than price in the risks, and that these globally competitive companies will find a way to harness AI for their benefit. The coming quarters will test this thesis, but if history is any guide, Indian IT has a habit of emerging from crises stronger and more relevant. The long-term story – of an industry that continuously transforms to meet the world’s technology needs – is far from over, even as it writes a new chapter in the age of AI.