HCLTech, TCS, and Infosys shares fell between five and nine percent over two trading sessions this week, extending a decline that has made the IT index one of the worst performers on the Sensex in the recent period. The falls are partly technical — profit-booking after a strong run — and partly fundamental, reflecting genuine uncertainty about the sector’s near-term trajectory.
What’s Different This Time
Indian IT has gone through cycles of valuation correction before. What makes the current one interesting is that the conversation has changed: it’s not just about demand slowdown in the US — the traditional driver of Indian IT volatility — but about a more structural question of what AI does to the outsourcing model itself.
The previous correction cycles were about: US recession fears (2008-09), visa restrictions (various periods), demand weakness after excessive post-COVID hiring (2022-23). All of those were recoverable because the fundamental model — Indian engineers doing technology work for American and European companies at significant cost advantage — remained intact.
The current uncertainty is about whether AI tools erode that model by reducing the labour intensity of software development and IT services. That’s a different kind of concern.
The Companies’ Response
All three companies have been talking about AI for over a year — their analyst calls are now structured heavily around AI service revenue and AI-augmented delivery capability. The question that markets are asking is whether those revenue lines are growing fast enough to offset the compression in traditional services.
The honest answer, from the most recent quarters’ data, is: not yet. AI-enabled revenue is growing from a small base. Traditional services are experiencing margin pressure. The transition period — which could last several years — is financially uncomfortable.
Is This a Buying Opportunity?
Several analysts have issued notes following this week’s falls suggesting the sector is now at valuations that price in a more pessimistic scenario than the fundamentals warrant. The long-term thesis — India’s IT sector has the talent and the client relationships to navigate AI transformation — hasn’t changed.
Whether this week marks a bottom or is early in a longer decline depends on data that won’t exist for another few quarters. Treat anyone claiming certainty on that question with appropriate scepticism.
