AI phobia, US jobs data wipe out ₹4 trillion for IT shareholders in six weeks

India’s top six IT services firms shed a staggering ₹4.14 trillion in market cap since 1 January, as fears of artificial intelligence wiping out top tech projects battered India’s IT outsourcers. Compounding the fear was a high number of new jobs in the US, reported late on Wednesday, which slashed hopes of an early interest rate cut in the US, keeping the cost of doing business high in India’s IT sector’s biggest market.

Tata Consultancy Services (TCS), India’s largest listed technology services firm, lost ₹1.73 trillion in market cap since 1 January, of which it lost ₹69,000 crore in just the four days of this week, Bloomberg data showed. The story was similar for Infosys too, which lost ₹64,000 crore from its market cap this week.

Thursday brought fresh agony for the sector, with all six top IT companies—TCS, Infosys, Wipro, HCLTech, Tech Mahindra and LTI MindTree—seeing their share prices drop 4.7-6%.

Analysts are now taking note of AI’s impact on tech services.

“Investors seem to be dubious on any tech names that have AI uncertainty at present,” Keith Bachman, analyst at BMO Capital Advisors, wrote in a note dated 12 February. “We think there is broader concern around both software as a service (SaaS) as well as IT services that durable growth is being impacted by AI native solutions, including the ability for AI companies to create service-like offerings.”

Last week, Anthropic showcased automation agents in its AI platform Claude, as well as a new foundational model, Claude 4.6 Opus. OpenAI, too, launched GPT-5.3 Codex, its latest model. Both platforms demonstrated exceptional capabilities for automating coding, debugging, invoicing, and other enterprise processes.

To be sure, handling enterprise tech processes is the bread and butter of India’s IT services industry. The caution, therefore, is very real.

Warning signs

On 5 February, brokerage Motilal Oswal said in a note that increasing adoption of generative AI may erase up to 12% of the sector’s revenue.

“While AI’s threat to software coding hours was well known, Palantir’s comments put ERP (enterprise resource planning) implementation into the spotlight, which so far could be considered less impacted by AI’s productivity gains…Palantir also mentioned that its AI platform was powering complex SAP migration work, compressing the implementation timeline from years to weeks,” the note added.

“We estimated 30-40% of IT services’ revenues at risk from AI deflation, largely focused on app development, maintenance and testing. Assuming a 30-50% productivity hit on low-level work in these areas, we believe 9-12% of IT services revenue stands to be eliminated. We expect this to happen over 3-4 years, underscoring a ~2% hit on revenue growth each year,” the Motilal Oswal note added.

“If ERP migration and third-party enterprise software (10-15% of industry revenues) come under the purview of AI, the hit from AI would be higher,” it further said.

The warning signs analysts are reading run counter to what India’s IT firms have done of late. For instance, on 10 December, TCS splurged $700 million to acquire US-based Coastal Cloud, a company with expertise in automating enterprise tasks built on the Salesforce platform. This was TCS’s biggest acquisition since going public in 2004. With AI potentially automating such tasks, a large chunk of investor money in IT firms could now be at risk.

Automation threat

For now, the respite could be slim.

“Going by the current scale of automation being seen from foundational AI companies, it does look certain that many back-end technology operations could become entirely automated and run within companies themselves—without needing an outsourcing partner. This, coupled with the fact that India’s top IT firms have not showcased any stellar AI innovation to date, is adding to concerns and fears of a meltdown in the sector,” Sudarshan Seshadri, partner and leader for AI at technology consultancy firm Tiger Analytics, told Mint.

Siddharth Bhamre, head of institutional research at brokerage Asit C Mehta Institutional Equities, said that a further decline could be on the horizon for the IT firms “because earnings growth remains weak even as valuations stay high, making traditional IT services less justified at expensive multiples.”

“Companies are growing at low single-digit rates while commanding expensive price-to-equity ratios, and this mismatch may lead to de-rating of these stocks. At the same time, even though IT companies are diversifying their revenue streams to have some exposure to AI, such projects may not reflect in the financials in the next few quarters,” he added.

There could be some hope on the horizon, too. BMO Capital’s Bachman added that the use of AI “remains very contextual and therefore not repeatable when implementing it into a business operation or process.”

“Hence, there is a need for last-mile work that involves IT service providers in order to improve the repeatability of the AI,” he said.

The rise of AI poses an existential threat to the $283 billion IT industry, as the growth of the Big Five has slowed. TCS, Infosys and HCLTech reported a dollar revenue growth of 3.8%, 3.9% and 4.3% respectively in FY25, with TCS and Infosys’s growth being their slowest since the pandemic. Wipro and Tech Mahindra fared worse, seeing their FY25 revenue slip 2.7% and 0.2%, respectively.