SaaSocalypse Fears Put Indian IT into an AI Reckoning

IT stocks have bounced after a bruising run, yet the selling pressure has carried a clearer message than a bad day in the markets, because investors are starting to reprice the services model as AI moves from efficiency tool to competitive threat. In eight trading sessions, about ₹5.7 trillion has evaporated from the sector, with the Nifty IT index down 19% in the same stretch, and bellwether Tata Consultancy Services itself falling 44% from its all-time high even after sporadic rebounds that invite value buyers.

This is where the argument turns uncomfortable, because the selloff is not really about one bad quarter, one missed deal, or one nervous day on Wall Street. The market is trying to price an existential trade, in which Indian IT’s clearest proof of AI progress becomes the clearest evidence that its business model is vulnerable. When an industry earns its profits by putting skilled people on tasks that can be specified, measured, and repeated, it is not surprising that investors panic at the prospect of software that can do more of those tasks without the people.

The irony is that the previous quarter contained the kind of AI milestones that investor relations presented as the bridge to the next cycle. TCS disclosed $1.8 billion in annualised AI revenue, up 17.3% quarter on quarter, even as the rest of the business grew 0.6%, which is the sort of split that usually excites investors who like growth stories inside slow moving giants.

Infosys talked about more than 500 AI agents deployed through Topaz and said it generated 28 million lines of code using generative AI, a 12% sequential increase, pitching it to investors as an efficiency lever for delivery. HCL Tech reported $146 million in Advanced AI revenue, up 46% year on year, which in benign conditions buys a company time when the macro mood turns sombre. Tech Mahindra signalled hybrid delivery models where humans work alongside AI agents, and that pricing is already evolving to reflect that mix.

Those are not small claims, but they offer no balm. Once AI moves from demos to deployments, the investor question shifts from who will sell AI to who will be sold by it. The immediate spark for concern came from Anthropic, which announced a tool pitched at corporate legal teams, claiming it can automate contract reviews, compliance workflows, legal brief preparation, and other routine knowledge work that looks suspiciously like the billable building blocks of outsourced services.

That announcement pushed ADRs of Infosys and Wipro down sharply overnight and led to a feeling that disruption is not a future risk but an imminent procurement decision. The broader selloff also rode a tech-led roil in the US where free-cash-flow concerns hit heavyweights, which matters because India’s IT sector still takes its cues from global risk appetite even when domestic earnings look fine.

SaaSpocalypse Now
Compounding the fear was a warning by Microsoft’s AI chief that many white-collar tasks could be automated within 12 to 18 months. Brokerage Jefferies called the mood a “SaaSpocalypse”, a trigger enough for investors to relook at valuations. 

TCS itself is now down 44% from its peak and hit an over five-year low of ₹2,585, with market capitalisation around ₹9.60 trillion, signalling how quickly leadership franchises can be treated like legacy assets when the narrative changes. The sector-wide drawdown over eight sessions, with ₹5.7 trillion evaporating from IT stocks, indicates this is not just stock-specific selling, but a risk reset on the whole model.

There is, of course, a counter case, and the Friday’s recovery hints at it. The idea is that even if enterprise software is rewritten with agents, someone still has to make it work across messy systems, security constraints, regulation, and real-world workflows, which creates a fresh round of integration and operations demand. That is likely, but the old IT business model may not work as clients start paying for outcomes rather than effort, and if AI compresses effort. The plumbing may still be needed, but the price of plumbing tends to fall with better tools and when the buyer gets more leverage.

The rebound in IT stock prices on Friday looks like a reaction to valuation, not a resolution of risk, because the next leg will be set by what clients do with budgets as agents substitute for routine delivery work. Indian IT can still make money in an AI-heavy cycle if it can charge for integration, assurance and accountability, as clients will pay less for effort when software does more of the doing.