Until about a decade ago, Infosys, TCS, HCL Tech, Wipro, and several others in the booming information technology (IT) sector were the darlings of the stock market. Considered a value buy, the IT sector was a dependable long-term growth driver when the rest of the market remained range-bound over earnings and valuation concerns or went through volatile phases.

This was mainly because India’s IT sector, combined with Business Process Management, has been a global leader in technology services, with export earnings estimated at US $224 billion (FY2024-25), contributing to a total industry revenue of US $283 billion. Though things have changed for the celebrated Indian IT firms in recent years, rarely have they faced a narrative shock as sharp as the current wave of artificial intelligence (AI) anxiety.

Over the last four years, following the slowdown in global growth, particularly in the US and Europe, Indian tech companies have been heavily affected because their earnings have remained under pressure. Now, the fear of AI, expected to disrupt their business model, has triggered a massive sell-off in IT shares.

While the IT services sector, employing roughly 5.8 million professionals and significantly contributing to employment and economic growth, is expected to maintain its position as a major contributor to India’s foreign exchange earnings, a different story is taking hold—a lot of pessimism and ripples of worry over a compelling narrative about AI’s impact on the sector. Most of the talk hovers around doom scenarios.

Market rout and valuation reset

With valuations of the top IT companies tanking over worries of AI making main roles at technology giants redundant, the massive crash in IT equity........

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