As AI clouds future of IT, Indian firms adapt to new game

ET Intelligence Group: Will Indian software companies rise to the challenge presented by new models of artificial intelligence (AI) that are transforming how enterprise solutions are implemented and delivered to clients? While the jury is still out, one thing is clear: domestic software exporters are far from unprepared.

Both large and mid-tier IT firms have been exploring ways-through internal initiatives as well as acquisitions and collaborations-to adapt to evolving technology that can strengthen their offerings. The rapid progress in AI is expected to enhance efficiency across the vendor-client ecosystem by shortening project timelines and enabling faster delivery of products and services to target markets. Viewed in this context, the current sell-off in IT stocks appears more a knee-jerk reaction rather than a sign of any fundamental shift to defensive sectors.

Last week, two major AI labs, OpenAI and Anthropic, released their latest models touting advanced capabilities to build software programming codes with greater accuracy than previous models. This sent ripples across tech and investor communities, forcing them to question the relevance of traditional software development companies that have so far thrived by employing legions of programmers. The tremors were felt on Dalal Street as the BSE IT index lost 15% in eight trading sessions to February 13, the biggest loss among sectoral indices on the exchange.

While uncertainties over the exact impact of AI capabilities will likely loom on IT stocks in the short term, the medium-to-long-term scenario appears less gloomy given the agility shown by IT exporters in aligning their offerings with the latest technology trends. Apart from training staff on AI platforms and forging ties with global tech partners, Indian IT exporters have been quick to share productivity gains with clients, which should retain their relevance.

The traction in new deal wins reported by IT companies over the past few quarters ensures that they continue to offer valuable services to clients. The aggregate total contract value (TCV) of order bookings by the top five Indian IT exporters, including Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, and Tech Mahindra, remained above $20 billion in each of the five quarters to December 2025. It rose to $21.5 billion in the December 2025 quarter from $17.4 billion two years ago.

On the valuation front, too, comfort is setting in as the current selling spree is driving the trailing price-earnings multiples farther away from historical averages.