Anthropic's AI Advances Stir Doubts Over Indian IT Revenue Growth

Shares of Indian software exporters took a hit recently, with a 0.6% drop following a harsh 6% plunge-the worst tumble in nearly six years. The catalyst? U.S.-based AI players like Anthropic (NASDAQ: ANTH) and Palantir ramping up automation, raising alarm bells about the future of India's labor-heavy IT services sector.

Industry watchers are singling out the threat to high-margin application services, which form a significant chunk-anywhere from 40% to 70%-of revenues for these companies. Jefferies, in particular, flagged that the anticipated growth projections may be overly optimistic, as the rapid deployment of AI might compress project timelines and undercut the traditional business model.

The sentiment has spilled over globally, hitting other IT stocks with exposure to AI-driven disruption. Investors unloaded a record $8.5 billion from Indian IT stocks in 2025, reflecting mounting unease over AI's potential to reshape the sector.

Despite the pessimism, some voices suggest the market overreacted. JPMorgan highlighted the gap between AI tool launches and wholesale replacement of complex enterprise software layers, hinting that full disruption might be a stretch. Domestically, Kotak Institutional Equities described the selloff as hysteria over minor tremors, not fundamental shifts.

Looking at major players, firms like Tata Consultancy Services (NSE: TCS), Tech Mahindra (NSE: TECHM), and LTIMindtree (NSE: LTI) are more exposed to application services, which constitute over half their revenues. They have witnessed share price declines between 4% and 7% recently. On the flip side, HCL Technologies (NSE: HCLTECH) has a lower proportion of application services at about 40% and isn't as severely impacted.

Brokerage Motilal Oswal estimates AI could slice off around 9% to 12% of IT industry revenues within four years. Meanwhile, Jefferies predicts that deflation in legacy services will drag down revenue growth over the next couple of years, overshadowing gains from AI-related business.

The IT sector index has dropped 17% since early 2025, marking its weakest stretch in over four months, a clear reflection of ongoing turbulence. Whether this signals a fundamental shift or just a market correction is up for debate.

What's clear is that AI isn't just a buzzword-it's reconfiguring how IT services operate and prompting a reassessment of long-held growth narratives in the Indian IT space.