This week, Anthropic, an artificial intelligence platform based in the US, launched a new automation tool that caused a significant market downturn, resulting in a loss of ₹2 lakh crore for Indian information technology firms on Wednesday. While opinions among brokerages are varied, they are generally cautious about the long-term effects of Anthropic’s AI tools on India’s $250 billion IT sector.
The initial decline began in Western markets before rapidly impacting major Indian IT companies, indicating a fundamental shift in how value is assessed in the era of artificial intelligence.
Anthropic has introduced a legal features tool on its platform designed to automate tasks such as contract reviews and legal briefings. The firm’s AI coding tool, known as Claude Code, was publicly launched in May of the previous year and reportedly achieved $1 billion in annual recurring revenue by November.
Are Concerns Exaggerated?
Analysts at Macquarie argue that fears surrounding potential revenue disruption caused by AI are overstated. They emphasize that Indian IT companies primarily cater to large global enterprises with intricate, multi-national SAP and ERP systems. Notably, established IT firms still generate substantial revenue from ERP-led transformation projects, which remain resistant to complete automation, despite the limited transparency currently available.
BofA views Anthropic’s Claude plugins as more relevant to software-as-a-service (SaaS) vendors rather than IT service providers. Their analysis suggests that AI adoption is predominantly seen in areas like compliance, risk management, quality assurance, and developer productivity, such as documentation and code searching. They add that while AI-assisted coding may enhance productivity by 10-15%, translating these improvements into direct revenue gains will require time.
Morgan Stanley also noted that recent management comments reflect an optimistic outlook for financial services, although an acceleration in growth is not expected until 2026. Executives believe that AI will expand the total addressable market, positioning IT service providers as essential links between new AI applications and existing processes.
Impact on Revenues
Analysts from Citi and Jefferies have taken a more cautious stance. Citi highlights the subdued growth in constant currency for leading Indian IT firms when compared to Cognizant Technology Solutions Corp., amid increasing competition, more rapid growth in Global Capability Centers (GCCs), and overall macroeconomic uncertainties. Jefferies cautioned that AI-enabled automation could diminish application services revenues, which account for 40-70% of total earnings. They suggest that current growth forecasts may not fully account for this impending risk, advising a selective investment approach favoring companies like HCLTech Ltd., Infosys Ltd., Coforge Ltd., and Sagility Ltd.
In addition to the potential revenue setbacks, analysts pointed out that AI’s influence on current work processes poses a significant risk. Recently, Indian IT firms have been downsizing as the demand for automated solutions reduces the need for a large workforce. Since the early 2000s, the IT sector has been a primary career path for millions of tech-savvy young people entering the job market each year.
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