The past month has been contradictory for the IT industry. NASSCOM projected record revenue of 30 lakh crore rupees by the end of the fiscal year, showing 6% growth. On the other hand, fears of AI eliminating jobs are causing sell-offs in stocks. The Nifty IT index has fallen by more than 20%. The reason for disappointment is clear – for decades this industry has relied on ‘labor arbitrage’, where the cost of hiring coders in Pune is much lower compared to America. Companies like Infosys, TCS earn revenue from labor-intensive tasks like software maintenance and routine coding with the help of coders. AI vs Coder Anthropic’s ‘Claude Code’ can create prototypes in minutes. Tech Mahindra CEO Atul Soneja argues that productivity improvements are only possible in ‘greenfield’ (new) environments. Deploying AI in ‘brownfield’ environments with legacy code and complex systems is difficult. Often clients realize their AI dreams were too ambitious. They ultimately end up keeping the same number of coders as before. Opportunity and Reality Infosys co-founder Nandan Nilekani estimates that AI-related services could be worth $300-400 billion by 2030. Recent results are encouraging. TCS’s AI sales grew 17% and account for 6% of revenue. According to HSBC’s Yogesh Agarwal, ‘There are very few solid cases of traditional software being consumed by AI.’ Role of GCCs Global Capability Centers (GCCs) are also employing tech workers. Since companies now consider technology as core to business, Indian IT industry will also benefit from increased in-house coding with AI support. The ‘disruption’ that was feared after ChatGPT’s arrival in November 2022 hasn’t materialized even after three years. Revenue is growing and hiring continues. Prices Have Become Reasonable; Industry in ‘Reset Mode’ with AI The IT sector has seen significant pressure in 2026. The IT index has fallen 28% from its peak. According to market analysts, the IT sector is not ending, but rather in a ‘reset phase’. Change in Valuation: Currently, the IT sector’s valuation is 15.4 times (15.4x) its estimated two-year earnings. Equal to Benchmark: The IT sector used to trade at approximately 17% premium (more expensive) to the Nifty 50 index, but now it has come at par with Nifty 50. This is being called the ‘value zone’ because the ‘excess shine’ in the shares has now disappeared. Advice: Avoid ‘bottom fishing’ i.e. buying at lower levels in the current phase. It’s wise to wait until there are signs of improvement in earnings. Growth Outlook: Slow but Stable Despite concerns, the sector is not completely collapsing. Industry’s annual earnings growth is expected to remain between 3% to 6%. This is lower than its historical average (7% – 8%). How are IT companies transforming themselves? New Model: Companies are moving towards ‘fixed-price’ contracts and improving per-employee profits. Workforce: AI-skilled talents are being hired at high salaries and existing employees are being ‘re-skilled’. Partnership: Companies are partnering with AI-native companies. How IT Industry Survives Against AI Getting work done through AI will be the main objective. Modernizing legacy systems is difficult because they have data silos and technical limitations. -Nandan Nilekani, Co-founder, Infosys (AI Impact)
