India’s IT services companies saw a sharp sell-off on Thursday morning (February 12), over persistent fears that the artificial intelligence (AI)-led disruption to their offerings could prove existential. The Nifty IT index was down more than 4%, with the industry’s bigwigs like TCS, Infosys, Wipro, HCLTech, Tech Mahindra, all falling between 3-5% at the time of publishing. TCS also hit a 52-week low.
This has become a broader trend. Over the past year, the Nifty IT index has plunged more than 17%, the stocks of Tata Consultancy Services (TCS) and Wipro have both crashed about 30%, and Infosys has fallen close to 25%, with all other major IT services companies facing a sharp sell-off.
Last week, when the sector came under pressure globally, led by fresh enterprise-grade offerings from Anthropic, a US-based AI company, Jefferies called the event “SaaSpocalypse”—a reference to Software-as-a-Service companies facing potential obsolescence.
Analysts at Motilal Oswal have previously said that over the next four years, between 9-12% of IT services companies’ revenues could be erased, underscoring a nearly 2% hit on revenue growth each year.
The question then, on everyone’s mind, is where does the IT services sector – a key driver of India’s economic growth in the last two decades – go from here, and what would the sector be able to bring to the table in an increasingly automated world?
What’s in store for Indian IT?
Last week, Anthropic launched a suite of workplace automation tools that can perform tasks previously handled by human workers or traditional software platforms. The announcement sent shockwaves through global technology markets, crystallising a fear that has been building for months: that AI might not just assist software companies, but potentially replace them altogether.
For Indian IT companies, the implications are particularly acute. Their business model has long depended on providing services—data processing, contract analysis, compliance monitoring, customer support—that AI tools can now potentially automate. Anthropic’s announcement includes specialised tools for legal workflows such as contract review, NDA analysis, and compliance monitoring, as well as applications in finance, sales, and data analytics.
While it may not be a complete doomsday for the sector, at least not yet, the recent price corrections have led to calls for the sector to evolve quickly to adapt to the AI world.
“Enterprise AI will not destroy the Indian IT services industry overnight, but it will certainly and significantly alter the value chains… As enterprises become comfortable with the use of AI systems that can independently undertake coding, testing, customer service, and knowledge work, the economic viability of the large-scale, low-skill manpower model will become increasingly less relevant,” Ankush Sabharwal, founder and CEO, CoRover.ai, said.
Though he said that AI may actually expand the IT sector rather than shrinking it, Sabharwal cautioned that only companies that can leverage domain knowledge, proprietary data, and scalable AI platforms to drive business outcomes would stand to gain. “Revenue growth will come less from adding people and more from intellectual property (IP) development, platform subscriptions, managed AI services, and outcome-based contracts,” he added.
Kotak Institutional Equities said that the AI disruption could benefit challengers such as Coforge, Hexaware, Persistent Systems and LTIMindtree over the incumbents if they can manage to gain a share of the much larger business pie that the latter currently have.
“Incumbents will be more reluctant to cannibalise their own business, especially in large accounts,” Kotak said, adding that the “challengers” should participate in cloud, data modernisation and legacy modernisation initiatives of their clients.
From opportunity to threat
The selloff represents a dramatic shift in market sentiment. For the past two years, the narrative around AI has been that it would enhance productivity and create new business opportunities for technology companies. Investors poured money into anything AI-related, driving valuations to historic highs. Now, though, a different story is taking hold.
For Indian investors, the question now is whether this represents a temporary panic or a more fundamental reassessment of the IT sector’s prospects. The selloff erased billions in market value.
The irony is sharp: the very technology that these companies have been racing to adopt and offer to clients is now being questioned as a potential threat to their core business model. Indian IT firms have spent heavily on training their workforces in AI capabilities and developing AI-powered solutions for clients. But if AI agents can bypass traditional software platforms entirely, the value of that investment—and the companies themselves—becomes uncertain.
Whether this marks the beginning of a prolonged downturn or merely a moment of market anxiety remains to be seen. What’s clear is that the conversation around AI has fundamentally changed.
Last week, Anthropic launched a suite of workplace automation tools that can perform tasks previously handled by human workers or traditional software platforms. (NYT File) 
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