9-12% of IT services revenue stands to be eliminated: MOFSL on Anthropic, Palantir impact

IT stocks in focus: Amid the ongoing rout in IT stocks, domestic brokerage firm Motilal Oswal Financial Services Ltd (MOFSL) believes 9-12 per cent of IT services revenue stands to be eliminated, assuming a 30-50 per cent productivity hit on low level work in areas like app development, maintenance, and testing.

Before Palantir's comments on ERP, 30-40 per cent of IT services revenues is seen at risk from AI deflation, said MOFSL. "This will happen over 3-4 years, underscoring a 2 per cent hit on revenue growth each year." If ERP migration and third-party enterprise software come under the purview of AI, the hit from AI would be higher," adding this as incrementally negative for the sector.

Indian IT services stocks followed the global rout in technology/software/consulting and outsourcing stocks on Wednesday with leading names like Infosys Ltd, Tata Consultancy Services Ltd (TCS), HCL Technologies Ltd, Wipro Ltd, Coforge Ltd, Persistent Systems Ltd and other tanked up to 7-8 per cent in the previous trading session.

The key catalyst was the Palantir earnings call, which highlighted how the company is upending pay per seat software as well as third-party software with its own AI offerings. It also shared a few examples of clients getting rid of third-party software. Palantir also mentioned that its AI platform was powering complex SAP migration work, compressing the implementation timeline from years to weeks.

On Thursday, select IT names like Hexaware Technologies Ltd cracked up to 10 per cent amid rising selling in the technology counters and muted Q3 results. Among other laggards from IT counters, Aurionpro Solutions, Rategain Travel Technologies, Saksoft Technologies and Intellect Design Arena tumbled up to 6 per cent from the broader market space.

AI-native firms will eventually leverage the enterprise relationships and context knowledge of IT vendors, who will turn out to be channel partners. This is a crucial monitorable over the next one year, said Motilal Oswal. Accenture is one of the key strategic partners to Palantir.

"In the next 3-6 months, it continues to monitor AI-native partnerships, which will be a key driver in the next 12-14 months. We expect that this should lead to a pick-up in AI services deals in mid-2026 in the form of short-cycle deals. We are seeing an acceleration in AI partnerships, and hence maintain our view on the sector for now," it adds.

The IT sector is really evolving with disruption led by new technology and rising competition. Announcements having sector wide implications often lead to broad-based effects. This phase underscores how tightly technology valuations are affected by AI narratives. Over the term, execution capability and AI adaptation along with reasonable valuations matter more for investing.

The Indian IT sector faces a genuine inflection point, as major companies are systematically incorporating AI lead solutions in addition to legacy offerings. New entrants and specialized AI startups are also gaining traction in India, but established IT firms possess critical competitive advantages with large client relationships and the capital to absorb acquisition for AI capabilities, said Dr Ravi Singh, Chief Research Officer at Master Capital Services

"The market response to such developments reflects heightened sensitivity rather than panic, though volatility due to sharp rally in US market. The disruption risk from AI is real, but its impact will unfold over time, not overnight. US technology stocks have witnessed powerful rallies driven by AI-led optimism and at such elevated levels any unanticipated news tends to trigger sharp reactions," he added.