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This report is from this week’s CNBC Inside India newsletter, delivering timely and insightful news and market commentary on emerging powers. Subscribe here.
big story
Indian IT stocks are facing their steepest monthly decline since the 2008 global financial crisis, with the Nifty IT index set to fall 20% this month as concerns about AI-driven disruption weigh on software stocks globally.
At the Mega India AI Summit held last week, leading technology companies announced partnerships with leading IT services companies in India to accelerate AI adoption across the enterprise. Tata Consultancy Services, India’s largest IT services firm and the world’s second largest, has partnered with OpenAI, while Infosys has teamed up with rival Anthropic, the maker of ChatGPT.
These partnerships have done little to cheer the market, with the Nifty IT index down 19.6% so far this month as investor concerns about the impact of rapid advances in artificial intelligence on the sector have soured sentiment.
However, India’s IT industry leaders argue that the introduction of AI is a “huge opportunity”.
Sham Arora, chief technology officer at Tech Mahindra, told CNBC: “We believe AI will enhance growth across our business and unlock opportunities for the next phase of the broader IT ecosystem.”
But unlike in the US, where debate is still ongoing between the “illogical” concerns about AI and the potential collapse of software-as-a-service (SaaS) companies, experts told me that AI will not render Indian companies providing IT services irrelevant. However, the margins will shrink.
Biswajit Maity, senior principal analyst at Gartner, said traditional IT services companies such as TCS, Infosys, Wipro and Accenture will play a “pivotal role in enterprise AI adoption” by leveraging their client relationships and domain expertise in integrating AI solutions.
Nvidia CEO Jensen Huang also sought to downplay concerns about AI on Thursday, suggesting the market is miscalculating the threat to software companies.
But to stay relevant, Indian IT services companies will need to invest in talent and unique platforms, develop industry-specific AI solutions and co-innovate with customers, Maity said. And while some of that work is underway, Mighty and other experts predict that it is unlikely to protect the interests of Indian tech companies.
pricing pressure
Indian IT companies collectively control more than one-third of the global IT services brand value, export technology services estimated at over $220 billion annually, dominate the global outsourcing landscape, and are critical to the world’s digital infrastructure.
However, the business model of Indian IT companies relies on worker arbitrage, and with advances in AI, this will soon be replaced by technology arbitrage, Maity said.
Indian IT companies derive most of their revenue from helping businesses integrate IT services with digital transformation, rather than from SaaS. This makes AI an immediate business opportunity, but a long-term challenge.
Manishi Raichaudhuri, CEO of Asia-Pacific-focused financial advisory firm Emer Capital Partners, told CNBC’s “Inside India” on Monday that companies cannot “suddenly move away” from services offered by Infosys and TCS and immediately “go anthropic.”
However, it added that customers are asking IT companies to incorporate AI agents into their services, which will hit pricing and mean these companies’ valuations will also take a hit.
AI will also transform the business mix of IT service companies.
A report released by global brokerage firm Jefferies on Sunday said AI could reduce the managed services business, which accounts for 22-45% of the revenue of India’s leading IT companies. The company said this makes the economy more cyclical and requires changes to human resources and operating models, further increasing risks.
Managed IT services refers to an IT company that manages a company’s IT needs on a day-to-day basis and provides support services, whereas consulting is a more cyclical business.
Jeffries said a tech company’s share price performance is “likely to have more to do with” its long-term business prospects than its short-term profit realization.
According to Gartner, Indian IT companies play a pivotal role in enabling enterprises to adopt AI, and spending is expected to surge in this area. The company estimates that spending on agent AI software will reach $985 billion by 2030, growing at a compound annual growth rate of 62.7% from 2025 to 2030 as enterprise adoption increases.
However, Jefferies cut its price targets for Indian IT companies by as much as 33% and downgraded most large companies to either maintain or underperform.
Investors appear to support Jefferies’ assessment and are unconvinced that AI will benefit IT services companies. With two trading sessions left, this could be the worst month for Indian tech stocks in nearly two decades.
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Jayanth Dasgupta, India’s former ambassador to the World Trade Organization, said India was within its rights to withdraw the tariff concessions it had extended to the US because one side had changed tariff rates, essentially resuming a negotiating agreement.
Santosh Viswanathan, managing director of Intel India, said the company has been in India for a “long time” and is supporting New Delhi’s semiconductor manufacturing and AI ambitions.
Indo-French Chamber of Commerce Secretary General Payal Kanwar said deepening India-France ties will help improve the defense ecosystem.
need to know
India is likely to continue purchasing Russian crude oil. Analysts say India is likely to continue buying Russian crude oil as a U.S. Supreme Court ruling that outlaws President Donald Trump’s import tariffs limits his trade policy options.
Indian trade negotiators postpone US visit. Indian trade negotiators have rescheduled a planned visit to Washington, D.C., aimed at striking an interim trade deal with the United States, a person familiar with the development told CNBC.
India launches federally-backed taxi service: To counter the dominance of American giant Uber, the Indian government has launched a taxi-hailing service, Bharat Taxi. The service gives drivers a cut of the profits they make from their business, and there are no fees.
Quote of the week
In many ways, the India-Russia relationship goes beyond just oil. This is a strategic partnership and India does not want to retreat beyond a certain point.
— Saran Sidor, Quincy Institute Global South Program Director
at the market
Indian stocks were flat amid regional gains, helped by gains in tech stocks, after Nvidia CEO Jensen Huang said the market had miscalculated the threat of AI to software companies.
Describing it as “counterintuitive,” Huang said AI agents would replace these software tools rather than replace them.
The Nifty 50 has fallen nearly 3% since the beginning of the year.
India’s 10-year government bond yield rose 1 basis point to 6.685%, while the rupee remained flat against the US dollar at 90.87 rupees.
very soon
February 27th – March 2nd: Canadian Prime Minister Mark Carney visits India
February 27: GDP data for the quarter ending December 2025
February 28: January industrial production value
Every weekday, CNBC’s Inside India brings you news and market commentary about powerful emerging businesses and the people behind their rise. Live stream the show on YouTube and watch highlights here.
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