Disrupting the disruptor: How AI forces IT services to redefine their role

The pivot to AI-driven models marks a structural shift - one that is fundamentally changing the $285 bn industry

India’s $285 billion tech services sector, employing 5.8 million, is facing its biggest threat, and that comes from technology itself — artificial intelligence (AI). Anthropic’s Claude Cowork, Microsoft Copilot, Google’s Project Mariner, Palantir and a growing cohort of AI-native tools can write code, test software and generate documents. And the machines are getting more sophisticated at delivering code. 

Market reaction to the shifts have been brutal. Despite easing tariff tensions with the US, the largest market for tech services, accounting for around 70  per cent of the business, and improving India-US ties, Indian IT stocks were hammered. Roughly ₹5.7 trillion in market value was wiped out in seven trading sessions to February 13. The Nifty IT index declined 19 per cent. Infosys, TCS, HCLTech, Wipro and Tech Mahindra fell 13-21 per cent.  

According to Reuters, the IT sector logged its worst week in more than 10 months, with nearly $50 billion market cap erased in February alone. 

Nitin Bhatt, technology sector leader, EY India said, “AI- led disruption is fundamentally different. For the first time, technology is collapsing work itself. Reinvention is therefore critical.” Automation has compressed low-value work — the repetitive coding, application maintenance, documentation and support tasks that once required large teams of engineers. 

AI shrinks tasks & manpower 

Acknowledging the shift, Vic Gupta, CTO, Coforge, said, “We believe that AI will shrink the unit cost of code…It will massively expand the surface area of opportunity and value in AI-led transformation.”  

In December 2025, Noida-based mid-tier IT services company Coforge acquired US-based AI and digital engineering firm Encora for $2.35 billion, marking a major shift toward AI-native engineering. This was the largest AI acquisition by any Indian IT company. 

In the Infosys earnings call in January, CEO and MD Salil Parekh said, “We are currently working on 4,600 AI projects. Our teams have generated 28 million lines of code using AI. We have built over 500 AI agents.” 

So, AI writes the first draft of code, tests scripts and automatically drafts documents. For a sector built on manpower and delivery at scale, such automation changes the model. Not surprisingly, the top fire Indian IT services companies net hired only 17 people in engineering roles in the first nine months of this fiscal year, according to their annual reports, reflecting the changing the contours of the sector, which was a magnet for millions of engineering graduates.  

Gaurav Vasu, CEO of UnearthInsight, a Bengaluru- based consultancy said,  “Tools from players like Anthropic, Microsoft, Google and Palantir are getting better at writing code, testing software, analysing data and generating documentation. This directly affects the most people-intensive layers of IT services.” 

According to UnearthInsight data around 6-8 per cent of roles in coding, application maintenance, sales support, legal documentation and data analysis face substitution or productivity-led reduction. Across the broader professional services ecosystem—including consulting and audit—10-15 per cent of workflow-heavy roles could see disruption. 

Bhatt added, “Clients are seeking 20 to 40 per cent discounts, pointing to AI-enabled productivity gains.” The old pitch — more engineers, more hours, more billables — no longer holds. Client expectations have clearly changed. Buyers no longer want vendors to simply deliver code or implement systems. They want outcomes. They want business improvements, margin gains and accelerated automation. 

Vasu said, “AI is changing how clients buy tech services. They now expect integrated end-to-end offerings with clear ownership outcomes.”  

Earlier, enterprises bought technology in silos: One firm implemented SAP, another ran operations, a specialist handled analytics, and in-house teams coordinated the rest. That model created handovers, delays and friction.  

Now AI is pushing clients toward integrated, outcome-led models with fewer vendors and sharper accountability. So if earlier, say a global retailer, had different vendors for customer relationship management (CRM), analytics, logistics optimisation and marketing, each delivered a piece of the solution. But accountability was fragmented. Now the retailer wants a single partner who uses AI to deliver the tasks, and reduces costs. 

For IT firms, the pressure is immediate. High-margin, process-driven businesses are being hit hardest because their revenues are tied to large teams executing repeatable tasks. In the short term, people-heavy delivery models face margin compression. 

But this is not just a threat. It is also an inflection point. 

According to UnearthInsight estimates, AI and GenAI applications represent a $250-300 billion market, while AI consulting and services add another $150-200 billion. Together, that’s nearly 30 per cent of the $1.6-1.7 trillion global tech services opportunity in FY26. Most Indian IT services companies derive less than 5 per cent of their revenues from AI-led offerings. 

The competitive landscape is shifting as well. The real competition is no longer just other services firms. Hyperscalers — Amazon Web Services, Microsoft Azure and Google Cloud — along with AI-native product companies such as OpenAI and Anthropic, are investing more than $500 billion in AI capex over the next couple of years. They are moving up the stack, offering end-to-end enterprise solutions that reduce the need for large services teams. 

Silver lining 

At Coforge, the mood is cautious but optimistic. Gupta said, “We see AI as a productivity accelerator. AI writes the first draft of code, while engineers focus on steering AI to solve complex, domain-specific problems. The value shifts to delivering outcomes faster.” 

Automation may compress low-value work, but it expands demand for higher-order services: AI governance, complex system integration, technical debt- reduction. For example, AI governance means using chatbots instead of humans. So work shrinks.  But it also expands as humans will be needed to ensure ethical use of data, remove biases and ensure that data use is in compliance with regulation.  

Most enterprises, Gupta said, “are still struggling to move beyond pilots. That creates a multi-year opportunity for Coforge, where we combine deep industry knowledge with AI-led engineering capabilities.” 

Infosys, for its part, says it is working with 90 per cent of its top 200 clients on AI initiatives. The company is engaged in 4,600 AI projects and has generated more than 28 million lines of code using AI. It has built over 500 agents and is scaling a “forward deployed engineer” team to drive value. 

CEO Parekh has spoken of six emerging AI-led value pools: AI engineering services, data for AI, agents for operations, AI and physical devices, AI trust and risk services, and AI-driven software development and legacy modernisation. 

Keshav Murugesh, CEO of WNS Global Services, an Indian IT multinational, calls this shift an operating paradigm change that redefines how companies create value: “Businesses are moving decisively from experimental pilots to embedding intelligence deep into production operations.”  

AI-powered intelligent operations, he believes, can turn routine processes into autonomous, data-rich engines, propelling workers into higher-order roles focused on governance and strategic decisions. WNS was acquired by French IT services major Capgemini for $3.3 billion in 2025. But that transition to higher order tasks is not frictionless. Entry-level automation will be deep, impacting jobs directly. Not all current talent will be equipped to build what EY’s Bhatt described as the “Tech Services 2.0” playbook. Reskilling will be uneven, and consolidation may accelerate among scaled players with strong platforms and IP. 

‘Just another tool’ 

Industry body Nasscom has sought to calm nerves, saying tools such as Claude Cowork will not eliminate the technology services sector. In a statement, Nasscom said, “Indian firms are already reinventing themselves to build customised solutions that drive measurable returns on AI investments.” 

A recent JP Morgan report suggested that AI is just another tool, not an existential threat, pointing to emerging demand in modernising legacy code, rewriting customised SaaS (software as a service) applications, building AI agents for operations and ensuring AI trust and reliability. Yet markets fear fundamental shifts. Investors are pricing in structural change, not cyclical slowdown. The sector’s rich margins—from high teens to around 22-24 per cent – were built on labour arbitrage and process discipline. AI erodes the labour component while raising the bar on innovation. The deeper question is whether AI can turn into an opportunity at scale for Indian IT. 

History offers clues. Bhatt said, “Every time software creation became easier (from mainframes to client-server to cloud) demand accelerated.” Lower costs expanded use-cases. More applications were built. New interfaces emerged. New businesses were created. 

AI could follow a similar trajectory. As code becomes cheaper, enterprises may push for more automation, deeper analytics, smarter integrations and new AI-native products.  

Vasu said, “Survival will depend on who first disrupts their delivery model, that is, moves from people-led execution to AI-led solutions. The future belongs to companies who can combine technology, AI and operations into a single, accountable offering.” In that sense, India’s IT services industry finds itself at a familiar crossroads—but with higher stakes. It has navigated Y2K, offshoring, cloud migration and digital transformation. Each wave demanded adaptation. Though AI is different because it changes the way of delivering services. 

The sector’s strength—engineering talent, client relationships and global footprint—remains intact. But those strengths must now be redeployed toward AI-native engineering, domain-specific platforms and integrated outcome-led offerings. 

India’s IT services companies will have to reset business models, automate aggressively at the entry level, and deliver impactful AI services that move beyond productivity to transformation.  

The disruptor has arrived. Whether it becomes the next growth engine, or the force that reshapes the sector, will hinge on how quickly the industry gets out of its comfort zone and reinvents itself. 

 

The writer is a New Delhi-based independent journalist