AI Rewrites the IT Code, Reprograms for a New Era

India’s information technology (IT) sector, long hailed as the “back office of the world,” is at a crossroads. The industry, built on a service-driven model, is now under pressure as artificial intelligence (AI) upends its low-cost business model.

Yet, the sector remains one of the country’s most profitable. In the BT500 list, it is ranked third in terms of consolidated profit after tax (PAT) at Rs 1.34 lakh crore, with 9% growth year-on-year (YoY). However, this was slightly below the 11% average increase in PAT of the BT500 cohort.

Within the sector, Tata Consultancy Services (TCS) remains the undisputed leader, clocking a PAT of Rs 48,800 crore on gross sales of more than Rs 2.5 lakh crore, both metrics seeing a 6% YoY increase. However, its average market capitalisation in the study period rose just 6.5%, the lowest in the IT pack.

Infosys comes a distant second with a PAT of Rs 26,750 crore on gross sales of Rs1.63 lakh crore. While profit growth slowed to 2%, investor confidence remained high, with its market cap swelling nearly 19% YoY to Rs 7.3 lakh crore.

HCL Technologies, the third on the list, saw an impressive 11% increase in PAT at Rs 17,399 crore. Net sales rose 6.5% to Rs 1.17 lakh crore, margins were 15%, while market cap surged 24% to Rs 4.6 lakh crore.

Wipro, long seen as struggling to grow, staged a comeback in FY25. Its PAT jumped 19%, the highest among the top five, to Rs 13,218 crore, despite a marginal dip in revenues of 0.7%. Improved operational efficiency lifted margins to 15%, while market cap rose 23% to Rs 2.86 lakh crore.

LTIMindtree, the youngest of the top five, clocked a PAT of Rs 4,602 crore, relatively flat compared with the previous year. Its revenue rose 7% to Rs 38,008 crore. Profit growth was just under 1%, with margins at 12%, lower than that of its peers. Still, the firm continues to gain scale and visibility, with a market cap of Rs 1.64 lakh crore. Among others in the top 10, InfoEdge saw the highest increase in PAT at 120%, while Tech Mahindra’s PAT rose 77%. In revenue, Persistent Systems was the leader, with a 22% rise in the topline.

However, the sector is facing big challenges. The rise of agentic AI has changed the game. Infosys CEO Salil Parekh said after the Q1FY26 results that the tech giant is laying emphasis on AI agents. Wipro, too, announced that it has deployed over 200 AI power agents using advanced technologies from leading hyperscalers for industry and cross-industry solutions.

Though it is too early to assess the impact of AI agents, they has already created a significant buzz, and not all the news is upbeat. TCS’ recent announcement that it will lay off around 2% of its workforce, or roughly 12,000 employees, has sent shivers across the sector.

Sushovon Nayak, Research Analyst at Anand Rathi Institutional Equities, tells BT Indian IT has historically adapted well to technological disruptions, such as the shift to Cloud computing, and is well-placed to become an implementation partner for AI-driven enterprises. “While some predict doom for Indian IT due to AI, it will likely improve productivity by allowing companies to do the same work with fewer people,” he says.

Other analysts say it is better to be cautious. Sumit Pokharna, VP-Fundamental Research at Kotak Securities, says none of the companies have secured any large, standalone orders purely on the basis of AI. “At present, AI is more of a supplemental service, used mainly to optimise efficiency within core activities,” he says. IT companies will need to ramp up AI penetration or develop products that can be offered as services to global clients, he adds.

Margins are under strain. In Q1, Infosys’ operating margin stood at 20.8%, down 20 basis points sequentially. HCLTech saw a sharper drop of 1.6%, while Wipro slipped 0.2%. Nayak points to changing client expectations. “With AI, work can be delivered more cost-effectively. The mantra these days is ‘more for less’.”

Industry watchers call it a “cyclical change,” arguing that the sector has the resilience to emerge stronger. Indian IT’s success story has long been rooted in its services-driven model, but as global competition intensifies, the shift towards building proprietary products may be inevitable. Though the sector has not seen a direct impact of US President Donald Trump’s tariff policies yet, experts say it is better to remain prudent.

The next big leap will be artificial general intelligence (AGI). Amit Chadha, MD & CEO of L&T Technology Services, sees a clear trajectory: “Moving from versatile AI, which handles multiple tasks across domains, to AGI will mean AI executing a far broader range of functions and independently determining outcomes with unprecedented flexibility.”

The sector’s history offers reasons for optimism. Time and again, Indian IT has adapted to shifts. From the Y2K opportunity to the Cloud computing revolution, it has emerged stronger each time. The AI transition, however, may require a deeper rethink of business models, pricing structures, and talent strategies than previous shifts.

@PalakAgarwal64