Nifty IT index has fallen for the seventh straight session and is down more than 7 percent so far this month. Heavyweights including TCS, HCL Tech, Wipro and Tech Mahindra have declined between 5-10 percent during the period. The weakness comes after two consecutive months of buying in the sector.
The latest launches from Anthropic, OpenAI, Google and Meta are proving to be a double-edged sword for the sector. While better and cheaper AI models could accelerate enterprise adoption and create new revenue opportunities for IT companies, analysts fear that they also raise the risk of deflation in legacy services as more software and business processes become automated.
Kotak Institutional Equities said the latest releases point to three important trends: software capabilities are improving, the gap between leading models is narrowing and vendors are increasingly focused on cost efficiency and cheaper pricing.
“Lower capability improvement in software-related tasks compared to certain other domains is a positive outcome for Indian IT,” Kotak said, arguing that it leaves room for more AI adoption by enterprises and creates new use cases for IT services companies.
At the same time, the brokerage said the deflation risk has not gone away. Even incremental improvements in coding and reasoning can add up as newer models are released.