Rapid advances in artificial intelligence are intensifying worries about the outlook for India’s IT services industry, as analysts warn that automation could structurally erode high-margin application services revenues. The concerns were sharpened by new AI tools from Anthropic, which investors fear could shorten project timelines and weaken the labor-intensive business model that underpins much of the sector.
India’s IT stocks fell sharply this week, with the software exporters index extending losses after its worst session in nearly six years. Analysts at Jefferies said AI-driven automation from Anthropic and Palantir highlighted growing risks to application services, which account for roughly 40% to 70% of revenues at many Indian IT firms. They warned that consensus growth forecasts may not fully reflect the potential hit, creating downside risks to earnings and valuations.
Large Indian IT companies have been investing heavily in AI and reskilling efforts, but weak global tech spending and pricing pressure have already weighed on growth. Some analysts cautioned that the selloff may be excessive, arguing it is unrealistic to expect AI tools to replace mission-critical enterprise software overnight. Still, others estimate that up to 9%–12% of industry revenues could be disrupted over the next four years, underscoring the scale of uncertainty facing the sector.
