AI not a threat, yet: IT sector outlook improves

After a phase of panic selling in Indian IT stocks, investors now appear to be recalibrating expectations, with growing recognition that artificial intelligence is not set to upend the software services industry, at least not in the near term. This shift in sentiment is reflected in selective buying, with the Nifty IT index entering a consolidation phase.

Brokerage firms have also begun upgrading select stocks following the sharp correction seen over the past month. Importantly, recent reports suggest that concerns around severe deflation in IT services may have been overstated.

A report by global brokerage CLSA, based on interactions with the management of TCS, Infosys, HCLTech, and Wipro, indicated no meaningful change in IT services positioning in the AI era. The report found no evidence of increased pricing pressure in renewal contracts due to the rollout of advanced AI tools by Anthropic and OpenAI.

“Vertical-wise demand commentary remains intact, with BFSI continuing to see tailwinds across companies,” the report noted. However, it flagged that decision-making cycles have slowed somewhat due to the ongoing West Asia conflict.

Despite this, deal pipelines remain robust, and sector valuations, now closer to their 10-year averages, are turning attractive, the brokerage said. This has raised expectations of improved growth prospects for the IT services industry in 2026.

The latest commentary suggests that fears of AI disrupting the core business models of Indian IT firms may be exaggerated. While a structural shift is underway, and clients are pushing for AI-led productivity gains to be reflected in pricing, the situation is far from a collapse scenario.

Investor anxiety had intensified following the release of new AI tools and plug-ins, particularly from Anthropic. However, global AI firms have not indicated that such tools would fully replace IT services, given the complexity and scale of enterprise technology environments. As the initial hype around AI begins to settle, the role of IT services firms may, in fact, expand rather than diminish.

Another notable development comes from Accenture. Its CEO, Julie Sweet, recently said the company is increasing hiring of college graduates even in the AI era. According to her, opportunities for freshers are likely to grow rather than shrink, countering the widely held belief that entry-level roles will disappear.

Amid such contrasting narratives, investors would do well to assess developments carefully. Technology transitions often unfold in unpredictable ways, and overreaction to early signals can be misleading. A measured, data-driven approach is essential as the AI cycle evolves.