As AI clouds the future of IT, Indian companies are adapting to new developments

ET Intelligence Group: Will Indian software companies rise to the challenge posed by new models of artificial intelligence (AI) that are transforming the way business solutions are implemented and delivered to customers? While the jury is still out, one thing is clear: domestic software exporters are far from unprepared. Both large and mid-sized IT companies have explored ways – through internal initiatives, as well as through acquisitions and partnerships – to adapt to the evolving technology that can strengthen their offerings. The rapid advancements in AI are expected to improve efficiency in the supplier and customer ecosystem by shortening project timelines and enabling faster delivery of products and services to target markets. Seen in this context, the current sell-off in IT stocks appears to be a knee-jerk reaction rather than a sign of a fundamental shift towards 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 through the technology and investment communities, forcing them to question the relevance of traditional software development companies that have so far thrived by hiring legions of programmers. The tremors were palpable on Dalal Street as the BSE IT index lost 15% in eight trading sessions till February 13, the biggest loss among the sectoral indices on the bourse.

While uncertainties over the exact impact of AI capabilities are likely to loom for IT stocks in the short term, the medium to long term scenario appears less bleak given the flexibility IT exporters are showing in tailoring their offerings to the latest technology trends. Besides training workforces on AI platforms and forging ties with global technology partners, Indian IT exporters have also been quick to share productivity gains with customers, which should maintain their relevance.

The large number of new deals that IT companies have reported in recent quarters ensures that they can continue to offer valuable services to customers. The total aggregate 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 through December 2025. In the December 2025 quarter, the value rose from $17.4 billion to $21.5 billion, compared to $17.4 billion two years ago.

Comfort is also starting to emerge on the valuation front, as the current sell-off pushes price-earnings ratios further away from historical averages.