India’s technology stocks have tumbled sharply in recent weeks, as concerns grow that artificial intelligence could disrupt the country’s $300 billion back-office outsourcing sector, says BBC.
The sell-off, part of a broader global correction in traditional software and IT stocks, began before recent geopolitical tensions but has had a pronounced impact on India’s economy.
For more than three decades, the country’s software services industry has generated millions of white-collar jobs and helped build a large middle class, fuelling demand for housing, vehicles and consumer services in cities such as Bengaluru, Hyderabad and Gurugram.
The Nifty IT index, which tracks 10 of the largest software firms, has fallen about 20 per cent this year, erasing tens of billions of dollars in market value.
The decline accelerated in early February after Anthropic introduced a tool through its Claude agent that it said could automate legal, compliance and data-related tasks, directly targeting labour-intensive outsourcing services.
Concerns have since deepened, with some industry leaders warning that artificial intelligence could eliminate up to half of entry-level white-collar jobs and significantly reduce demand for traditional IT services by 2030.
Indian IT firms, however, have sought to reassure investors, arguing that while artificial intelligence will reshape operations, it will also create new opportunities.
Global investment bank Jefferies said client engagements are likely to shift towards advisory and implementation services, while revenues from application management services, which account for 22 to 45 per cent of income, could face sharp declines.
This implies that fees earned from maintaining software systems, fixing bugs and managing updates may shrink as companies focus on higher-value but less frequent consulting work.
Jefferies estimates that, in a worst-case scenario, revenue growth for IT firms could be 3 per cent lower over the next five years, with growth flattening after 2031.
Not all analysts share the pessimism.
JPMorgan described IT companies as the “plumbers of the tech world”, arguing that while artificial intelligence can automate certain tasks and generate code, it cannot easily replicate the level of customisation provided by established software firms.
The bank expects increased collaboration between AI developers and IT service providers, creating new areas of work rather than outright replacement.
Infosys Chief Executive Officer Salil Parekh has also said artificial intelligence expands opportunities, as firms can help clients modernise legacy systems using intelligent tools.
According to Infosys, while generative AI could displace 92 million jobs globally, it may create around 170 million new roles, including positions for data annotators, AI engineers and project leads.
HSBC similarly argued that software firms will remain central to the global adoption of artificial intelligence, describing them as the primary channel through which AI will be deployed across large enterprises.
It said large-scale AI systems are not suited to replace core enterprise software, which has evolved over decades to deliver high reliability and performance.
However, analysts agree that the transition will not be painless.
Industry body Nasscom said 2025 marks a turning point, with companies moving from experimenting with AI to deploying it at scale.
Yet revenue from AI-related projects remains limited, at about $10 billion out of total industry revenues of $315 billion.
Overall sector growth is expected to slow to around 6 per cent this year, well below the double-digit expansion seen in earlier years.
Hiring is also likely to remain subdued, with workforce growth projected at just 2.3 per cent in 2026.
Billing models are shifting as well, with companies increasingly charging based on outcomes rather than hours worked.
Analysts at Nuvama Institutional Equities said revenues are likely to come under pressure in the near term, with benefits from artificial intelligence emerging only over the medium term.
External factors are adding to the strain.
While tariff-related uncertainties have eased, visa restrictions in the United States, the largest market for Indian IT firms, have tightened.
Moody’s Analytics estimates that higher visa costs could raise operating expenses for major IT companies by $100 million to $250 million, equivalent to about 1 per cent of revenues.
The combined pressures come at a time when the sector accounts for roughly 80 per cent of India’s services exports, underscoring the significance of the transition now under way.
