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During the last three trading sessions in the Indian stock market, the IT sector has given investors sleepless nights. In these three days, the market value of IT companies has decreased by about Rs 2.5 lakh crore. The Nifty IT index has fallen by almost 8% and large to mid-cap IT stocks have come under immense pressure. The question is whether this is just a temporary decline or whether there is a bigger threat to India’s IT-digital model.
The biggest reason behind this decline is considered to be Artificial Intelligence i.e. AI. AI-based automation tools are advancing so rapidly around the world that investors fear that the traditional IT outsourcing model may weaken. Recent announcements by AI company Anthropic and data analytics firm Palantir further increased this fear.
Palantir claimed that its AI platform can now complete complex enterprise software migrations like SAP in just weeks instead of years. This statement proved to be a big shock for the market, because till now ERP implementation was considered a safe and long-term business for Indian IT companies. As soon as this news came, investors started withdrawing money from IT shares.
Are IT companies in danger?
In an ET report, analyst Abhishek Pathak of brokerage house Motilal Oswal believes that already 30-40% of IT services revenue was under threat of AI deflation, which is mainly related to tasks like app development, maintenance and testing. He says that if productivity increases by 30-50% due to AI in these low-end tasks, then about 9-12% of the total revenue of IT companies may be lost in the next 3-4 years. Its effect will be clearly visible on growth every year.
The matter of concern is that now this threat is not limited to just coding or software testing. If ERP migration and third-party enterprise software also come under the ambit of AI, then the problems for the IT sector may increase further. These services constitute 1015% of the total revenue of the industry.
positive sign
However, not all experts take such a pessimistic view. Amish Shah of BofA Securities believes that the impact of AI tools is more on software companies, while IT services companies can adapt themselves through new AI-driven services. According to him, many Indian IT firms are now collaborating with AI-first companies to create new enterprise solutions, which can also create new opportunities in the future.
Every big technology change initially brings fear and decline. Earlier, the same had happened with cloud computing and BPO sector also. There was a setback in the beginning, but with time the industry changed itself and then emerged stronger. The same story may be repeated with AI, although this transition will not be easy. Now the big question is whether Indian IT companies will be able to turn AI into an opportunity instead of a threat? The coming few years may prove to be the most decisive for Digital India.
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