The worries around an AI-led disruption in the IT sector began earlier this year when AI startup Anthropic launched plug-ins for its Claude Cowork agent, which can automate tasks across functions such as legal, sales, marketing and data analysis. Rising capabilities of AI tools sparked fears of the nascent technology replacing skilled software engineers, leading to concerns about massive layoffs in India’s much-touted IT sector.
This triggered a massive crash in IT stocks, with heavyweights Infosys, TCS, Wipro, Tech Mahindra and LTIMindtree plunging up to 30% in 2026 so far. Some analysts sounded the alarm on the need for these IT service companies to gradually reduce staff as cheaper and faster AI takes over.
AI leading to job losses? Not really
CLSA looked at the Naukri Jobspeak Index and daily hiring activity on Indeed to see if there was any visible early impact from the arrival of GenAI. Despite the negative sentiment around AI affecting revenue and earnings prospects for these companies and denting their hiring numbers for software and services companies, the international brokerage said that the data showed otherwise lately.
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“Hiring activity in the IT services sector in India increased by mid-single digits YoY in Feb (per Naukri) with revenue decoupled from headcounts implying increasing revenue per employee, while BPO, which was feared to be impacted more severely, is seeing strong growth supported by healthy headcount additions. In the US and the UK, as well, regions which could be more vulnerable to job disruptions due to higher relative salaries versus India, we believe the bottom is behind it after a three-year drawdown, with hiring activity starting to pick up over the past few months,” CLSA analysts said.
In turn, AI is leading to higher productivity across enterprises, increasing revenue per employee despite lower utilisation levels and higher offshore efforts, the analysts said. “New hiring targets are intact for next year and are similar to last year, implying no negative impact on hiring. TCS plans to hire 40k new hires, Infosys 20k and Cognizant 20k next year,” they added.
Rising need for specialised talent in AI-related roles
CLSA, however, noted a greater need for specialised talent in AI-related roles. This is evident from the fact that IT behemoths have been announcing new vacancies for specialised roles in this area. During its recent Investor AI Day, Infosys mentioned hiring new engineers with deep domain expertise at salaries up to Rs 21 LPA. Similarly, TechM has categorised its employees into white, blue, brown and black belts regarding their reskilling efforts.
On the margin front, CLSA believes that AI could help expand margins by boosting employee productivity, where some gains might be shared with clients, and a part of it retained. It so far does not see any major impact on operating margins for the companies under its coverage.
No impact on jobs from AI
“We do not yet see any impact on jobs feared to be affected by AI, which include software development, IT operations and customer service roles. We observe a similar trend in both US and UK, where the number of job postings has come down considerably since 2022, after a surge post the pandemic. Software development jobs came off much sharper in 2023, signalling the end of a large-scale tech hiring, but the same has started to pick up again. IT operations and helpdesk jobs also see a similar trend as software development, with a recent uptick in customer service jobs as well,” CLSA said, citing data from job site Indeed.
Earlier, Nuvama in its note said that the sharp correction in IT stocks seen since the beginning of the year, due to expectations of AI-led disruption in the sector following back-to-back AI tool launches by Anthropic, has made valuations attractive.
‘Reports of my death are greatly exaggerated’
“Reports of my death are greatly exaggerated,” Nuvama said, citing Mark Twain’s quote as perfectly explaining the current situation of the IT sector.
“Given the advent and adoption of Gen AI, obituaries of the Indian IT services industry are being written all around. The concerns have been amplified by the sharp stock reactions, first with global SaaS and now with IT services companies,” it said.
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Nuvama sees no existential threat from Gen AI and believes that the requirement for a system integrator, which can customise an enterprise’s plug-and-play software inputs and outputs as per its requirements, will always exist.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)