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Great story
Indian IT stocks are facing their steepest monthly decline since the 2008 global financial crisis, with the Nifty IT index on track to drop 20% this month as concerns over AI-led disruption pressure software stocks globally.
At the Mega India AI Summit last week, leading tech companies announced tie-ups with leading Indian IT services firms to boost AI adoption across industries. India’s largest and world’s second largest IT services company, Tata Consultancy Services, has tied up with OpenAI, while Infosys has partnered with rival Anthropic, maker of ChatGPT.
These tie-ups did little to cheer markets, with the Nifty IT index down 19.6% year-to-date this month, as investor concerns over the impact of rapid artificial intelligence advances on the sector dampened sentiment.
However, Indian IT industry leaders have termed the implementation of AI as a “huge opportunity”.
“We are confident that AI will power growth across our business and unlock the next level of opportunity for the broader IT ecosystem,” Sham Arora, Tech Mahindra’s chief technology officer, told CNBC.
But unlike in the US, where AI fears are “irrational” and there is still debate amid the possible decline of companies that provide software or SaaS as a service, experts told me that AI will not make Indian firms’ IT services irrelevant. However, this shrinks their margins.
Traditional IT services companies such as TCS, Infosys, Wipro and Accenture will play a “key role in enterprise AI adoption” by leveraging their client relationships and domain expertise to integrate AI solutions, said Biswajit Maity, senior principal analyst at Gartner.
Nvidia CEO Jensen Huang tried to downplay AI concerns on Thursday, suggesting that markets had miscalculated the threat to software companies.
But to stay relevant, Indian IT services companies need to invest in talent and proprietary platforms, develop industry-specific AI solutions and co-invent with customers, among other things, said Mighty. And while some of that work is underway, efforts to protect Indian IT companies’ margins are unlikely, Mighty and other experts forecast.
Price pressure
Indian IT companies collectively control one-third of global IT services brand value, export technology services estimated at over $220 billion annually and dominate the global outsourcing landscape, critical to the world’s digital infrastructure.
But the business models of Indian IT companies depend on labor intervention and with the advancement of AI, this will soon be replaced by technology intervention, said Mighty.
Indian IT companies derive most of their revenue from IT services integration and helping enterprises with digital transformation and not SaaS. This makes AI an immediate business opportunity, but a long-term challenge.
Enterprises cannot “suddenly move away” from services offered by Infosys or TCS and immediately “move to Anthropic,” Manishi Raychoudhury, CEO of Asia-Pacific focused financial advisory firm Emmer Capital Partners, told CNBC’s “Inside India” on Monday.
But clients are asking IT companies to incorporate AI agents into their services, which means prices will take a hit and so will the valuations of these companies, he said.
AI will also transform the business mix of IT service companies.
A report by global brokerage firm Jefferies on Sunday said AI could shrink the managed services business, which accounts for 22%-45% of the revenue of major Indian IT companies. This will increase volatility and require a change in talent and operating model – adding more risks, it said.
Managed IT services refers to IT companies that perform day-to-day management of enterprises’ IT needs to provide support services, while consulting is a more cyclical business.
Jefferies said the stock performance of IT companies is “mostly” related to the long-term business outlook rather than earnings delivery in the near term.
Indian IT firms will play a key role in enabling AI adoption by enterprises, an area where spending will rise sharply, Gartner said. Agentic estimates that AI software spending will reach $985 billion by 2030, growing at a compound annual growth rate of 62.7% from 2025 to 2030 as enterprises scale adoption.
Jefferies, however, cut price targets on Indian IT companies by up to 33% and downgraded most large firms to hold or reduce.
Investors seem to favor Jefferies’ valuation and remain unconvinced that AI will benefit IT services companies. With two more trading sessions to go, this month has been the worst for Indian IT stocks in nearly two decades.
Top TV picks on CNBC
Jayant Dasgupta, a former Indian ambassador to the World Trade Organization, said India would be within its rights to withdraw the tariff concessions extended to the US because the tariff rates on one side had been changed, effectively reopening the deal for negotiations.
Santosh Viswanathan, managing director of Intel India, said the company is in the country “for the long haul” and is supporting New Delhi’s semiconductor manufacturing and AI ambitions.
Payal Kanwar, director general of the Indo-French Chamber of Commerce and Industry, said strengthening India’s ties with France would help improve its defense ecosystem.
Must know
India is likely to continue buying Russian oil. Analysts said India will continue to buy Russian oil as President Donald Trump’s US Supreme Court ruling banning import tariffs restricts his trade policy options.
Indian trade negotiator delays US visit. India’s trade negotiators will reschedule their planned visit to Washington, DC with the aim of finalizing an interim trade deal with the US, a person familiar with the development told CNBC.
India to launch federal government-backed taxi service: Challenging the dominance of American giant Uber, the Indian government has launched the Bharat Taxi service, which offers drivers a share of the profits from the business and charges no commission.
Quote of the week
In many ways, India’s relationship with Russia goes beyond just oil. It is a strategic partnership and India does not like to step back from it.
– Sarang Shidor, director of the Global South Program at the Quincy Institute
in the markets
Indian stocks were flat amid regional gains fueled by a tech stock rally after Nvidia CEO Jensen Huang said markets had miscalculated the AI threat to software companies.
In what he describes as “contradictory,” Huang said AI agents don’t replace these software tools, but instead use them.
The Nifty 50 is down around 3% so far this year.
The yield on 10-year Indian government bonds rose 1 basis point to 6.685%, while the rupee traded steady at 90.87 to the US dollar.
is coming
February 27 – March 2: Canadian Prime Minister Mark Carney visits India
February 27: GDP data for the quarter ending December 2025
February 28: Industrial production data for January
Every weekday, CNBC’s “Inside India” news show brings you news and market commentary on emerging powerhouse businesses and the people behind their rise. Livestream the show on YouTube and catch the highlights Here.
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Asia: Monday-Friday, 11:00-12:00 SIN/HK, 08:30-09:30 India
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