Indian IT services companies are facing renewed pressure as rapid advances in artificial intelligence raise concerns about the future of their core revenue streams. Analysts warn that faster automation, driven by US-based AI firms such as Anthropic and Palantir, could reduce demand for high-margin application services, a key earnings driver for Indian software exporters.
Shares of Indian IT companies reflected these worries. The Nifty IT index fell 0.6 percent on Thursday, a day after plunging nearly 6 percent, its sharpest fall in almost six years. The selloff followed fresh fears that AI-led automation could shorten project timelines and weaken the industry’s traditional, labour-intensive business model.
Analysts say the concern is not just about short-term volatility, but about a possible structural shift in the sector.
Key risks highlighted include:
Faster automation reducing the need for large teams
Shorter project cycles and lower billing hours
Pressure on pricing for legacy application services
Brokerage Jefferies said claims by Anthropic and Palantir highlight how AI could eat into application service revenues, which account for 40 percent to 70 percent of total revenue for many Indian IT firms. According to the brokerage, current growth estimates do not fully reflect this risk, leaving room for earnings downgrades and valuation pressure.
The weakness in Indian IT stocks mirrors a broader global selloff in technology shares, particularly companies seen as most exposed to AI disruption.
The AI concerns come at a time when Indian IT firms are already dealing with multiple challenges:
Weak global technology spending
Delays in client decision-making
Continued pricing pressure
Despite stepping up AI investments and employee re-skilling, the sector has struggled to attract investor confidence. Foreign investors sold a record $8.5 billion (₹70,550 crore) worth of Indian IT stocks in 2025, reflecting persistent scepticism about growth prospects.
Not all analysts agree that the recent fall fully reflects reality. JPMorgan said that while AI disruption risks are real, it is unrealistic to assume that new tools will replace every layer of mission-critical enterprise software overnight.
Kotak Institutional Equities described the sharp decline as driven more by fear than fundamentals, calling it “plenty of panic over a little flutter”.
Large IT firms with higher dependence on application services are seen as more vulnerable:
TCS, Tech Mahindra and LTIMindtree derive about 55 percent to 60 percent of revenue from application services
HCL Tech has lower exposure at around 40 percent
Brokerage Motilal Oswal estimates that 9 percent to 12 percent of industry revenues could be eliminated over the next four years due to AI-led disruption.
Jefferies expects AI-related deflation in traditional service lines to outweigh gains from new AI opportunities over the next one to two years. The Nifty IT index is down 17 percent so far in 2025, underperforming the broader Nifty 50, and analysts warn that volatility in IT stocks may persist.
