Mumbai, December 3, 2025 – The relentless march of artificial intelligence is casting a long shadow over India's largest IT firms, leading to a significant erosion of their standing in the benchmark BSE Sensex. The combined weight of IT services stocks within the Sensex has plummeted to a low of 11.3%, a level unseen in 18 years. This decline reflects growing investor apprehension fueled by the rise of AI and a dampened outlook for growth in the sector.

The shift is attributed to the increasing capabilities of AI in performing tasks traditionally handled by IT companies. AI's ability to automate code writing, testing, and debugging is reducing the need for large IT workforces, impacting the revenue model of companies like TCS, Wipro, and Infosys. Clients may reduce outsourcing, opting for in-house AI solutions or smaller, more specialized teams. Concerns are also rising that IT firms may need to lower their prices to compete with AI, which will impact their profitability.

However, some analysts view the current situation as a potential investment opportunity, anticipating a recovery in growth starting in 2026. They believe that the market has already priced in a large part of the concerns surrounding the IT industry. Moreover, the long-term outlook remains positive, with sustained deal momentum reported by major IT companies in the September quarter of 2025, indicating resilience in the face of global economic challenges.

Indian IT companies are proactively adapting to the changing landscape by investing in AI capabilities and developing new AI-driven services. Infosys, for example, is expected to benefit from enterprise-wide AI spending, with its Topaz suite of AI services and full-stack app services gaining preference. The companies are also exploring restructuring their workforce and renegotiating contracts to align with the evolving demands of the industry.

Despite the challenges, the Indian IT sector continues to hold a significant position in the global IT landscape. According to a report by HSBC Global Research in FY25, India accounts for 18% of the outsourced segment of IT spending, a substantial increase from 13% a decade prior. This indicates the continued reliance of businesses on Indian IT firms for their technology needs.

The Nifty IT index experienced a sharp fall of 3.35% on January 27, 2025, followed by another 0.57% drop the next day, triggered by market reactions to the rise of AI platforms. On December 3, 2025, shares of major IT companies like TCS and Wipro advanced by 2% on the NSE, while Mphasis, Tech Mahindra, LTIMindtree, and Infosys gained up to 1%. The Nifty IT index was the sole gainer among sectoral indices, rising 0.57%, compared to a 0.45% decline in the Nifty 50.

While the transition may be turbulent, the broader Indian economy remains resilient. Investors and industry stakeholders are closely monitoring these developments as they navigate the evolving dynamics of India's technology sector and overall market conditions. The ability of Indian IT firms to adapt to the AI revolution will determine their future growth and standing in the global market.