Table of Contents
Introduction
For past few years, Artificial Intelligence has found its home in IT industry where it serves as assistant to provide helps in simple coding as well as generate information required by coders. However, the current generation of AI agents available have high probability of performing errors in their work. Due to such high chances of error, IT professionals did not paid much attention to working of AI.
However, in recent times, there has been huge advancement in field of AI. Latest AI agents are significantly involved in generating codes for new mobile apps, website development for a new group of coders called vibe coders. These coders do not have much technical knowledge but they develop their mobile apps as well as website using AI.
Adding to above, recently Anthropic launched its latest AI agent, Claude Code which led IT industries across globe to wake up and smell the coffee. Similar is in case with Indian IT Industry, where most of companies operate in SaaS model.
With launch announcement made by Anthropic, there was a huge impact on valuation of most high valued IT companies in Indian Market. This announcement led to selling of stocks of major IT companies such as TCS, Tech Mahindra, INFY.
In this article, we try to identify reasons that led to such market crash and also understand what future of IT Industry looks in India.
Claude Code: Latest product of Anthropic
Recently launched AI assistant from Anthropic is named Claude Code. It has been developed to help in automation of software development task. Previously, AI agents were only able to perform task of code completion whereas Claude Code can serve much complex tasks such as:
- Writing complete software libraries and modules
- Debugging codes that are already written to perform correct execution of code.
- If there is any pull request, then such requests can be reviewed by Claude
- Most important task which is automation of testing workflows
- It can also manage development environments
Recently, it was announced that Claude Code can also understand COBOL and write codes in it. COBOL which is used in mainframe computers made it necessary for programmers intending to work on mainframe to know COBOL.
Using Claude is simple as developers can instruct AI using natural language prompts to generate programming codes that are functional as well as these codes can be in multiple programming languages. Thus, it reduces the time needed to build software applications by a large margin.
Abstract of Indian IT Industry
Since 90s, IT industry in India was focused on grabbing outsourcing contracts from European and US clients. Most of these clients outsource repetitive works such as maintenance, bug resolving as well as software testing processes to Indian companies. By outsourcing such repetitive jobs, companies in US and Europe can focus on development of state-of-art softwares and revolutionary softwares.
Most large companies in Indian IT Industries including TCS, Infosys are involved in providing services to BFSI sectors of US and Europe. Indian IT companies mainly focus on developing CRM softwares for these clients along side maintaining their servers.
The difference in currency of India with European and US helps Indian companies to work for much lesser than their European and US counterparts. However, with emergence of AI agents that can perform repetitive tasks such as bug debugging, future prospect of Indian IT Industry looks bleak.
Current Outsourcing Model and Impact of AI
Currently, client gives contract to Indian IT companies, where large teams work on those projects to meet completion deadlines. The clients are charged based on hours spend on a particular project.
If a project is quite complex, then some employees are deployed by Indian companies to work at client company till project completion.
Emergence of AI assistant have made a huge impact on current outsourcing model as many companies are looking at cost cutting as well as geopolitical issues are hampering outsourcing process.
With launch of Claude Code, there is more fear among Indian companies due to its ability to perform complex tasks. Claude Code impact Indian IT Industry in many ways and has been more witnessed by investors when it led to depreciation of stock prices by more than 20%.
Indian IT companies are also shifting to smaller teams that are proficient in using AI assistant in their coding process. Few reasons for such shift are as below:
- Shrinkage of timeline for developing software Clients are looking for fast deployment of their software and therefore demand faster development and testing of their software. Using AI agents, labour-intensive work such as writing codes and debugging can be completed quite fast.
- Generic softwares are becoming cheaper Since most of software have similar workflow, there is a huge competition among Indian IT companies to get projects. Such competition lead to cost cutting impacting profit margins of a company. In such scenario, companies are unable to afford large number of coders and eventually replace them with AI assistant to maintain their profit margins and remain in competition.
- Clients are not affected whether coding is manual or automated Most clients do not have any concern about coding process as they are only focused on obtaining a fully functional software. Moreover, having a AI generated code helps in faster debugging and changing of code as per requirement of client.
Stock Performance of Large IT companies in India
When we look at different IT companies stock, there is a sharp downfall in their valuation since launch of Claude Code. Many IT stocks were trading with too high P/E value, which means they were overvalued as per industry standards. With Claude Code announced, there is a sense among investors that market prospect of these IT companies would get hampered as most repetitive outsourcing tasks would be easily overseen at client end using AI.
Let us review performance of few Indian IT companies
Tata Consultancy Services
Previously TCS stock was trading at ₹3200 and after its announcement, share has fallen by almost 25%. Its P/E ratio has fallen to 17.46 making it below industry average of 21.19.
Recently, TCS has partnered with NVIDIA to launch “Rapid Outcome AI” which will start massive deployment of AI in different sectors including Banking, Manufacturing and Retail.
Infosys
Previously stock price of Infosys was ₹1600 which fell by 21% after announcement of Claude Code. Infosys has created its AI platform named “Infosys Topaz”, which is a comprehensive platform integrating AI, analytics and cloud.
HCL Technologies
Before launch of Claude Code, stock price of HCL Tech was hovering around ₹1700 and currently it has broken 52-week low price to reach ₹1373, which is a fall of 19%. HCL Tech is making transition from GenAI to Agentic AI. Moreover, HCL Tech is looking forward to establish AI centre at Calgary, Canada. HCL will be developing AI powered development tools at its new AI centre.
Dependence of Indian IT sectors on AI Platforms
AI platform that are vital to industry are mostly US based and have subscription model of revenue. Thus, most Indian IT companies need to pay subscription to obtain their services. Since, usage of AI is increasing, dependencing of Indian IT companies are also increasing on AI tools, which will ultimately impact how much expense should an IT company spend on AI platform.
Over time, most companies would spend more on AI tools than human labour. It would be necessary for Indian IT companies to generate their own AI tools to reduce cost.
Another issue of using AI tools from outside is lack of privacy. Indian companies would need to develop their in-house AI tools to deal with privacy issues. Information about clients could leak out on using AI tools from other companies, which can affect reputation of Indian companies.
Future of Indian IT Industry in age of AI
Launch of Claude Code is a wake up call for most Indian IT companies, as it showed leverage that AI tools bring to the table. Going forward, it is necessary that IT companies become more AI centred, giving more focus on using AI implementation in their projects.
It will be necessary for Indian IT companies to have:
- Software development teams that have AI assistant for repetitive tasks
- Small teams that are well trained in using various AI tools
- There should be greater focus on developing in-house AI tools rather than using outsourced AI tools
It would be necessary that all big Indian IT companies implement AI policy quickly and strictly as AI tools have opened a new arena, where small IT companies can easily defeat bigger companies due to speed of AI implementation and smaller workforce.
Conclusion
Stock prices of Indian IT companies certainly reflect upcoming impact on revenue of most IT companies. Most IT companies would need to hire professionals who are ready to innovate AI tools in-house rather than get subscription services to complete projects.
Investors need to do hardwork of noticing all relevant news of AI implementation and its impact on stocks before making any investment. However, investors can also get help from Dalal Street Advisors to make decisions about investment without making any further research as all background research are conducted by Dalal Street Advisors regularly.
AI tools would prove boon or bane, it would be decided in future. Currently, companies need to accelerate implementation of AI tools and train their current staff to use these tools efficiently. Companies should also remember that AI tools can also produce errors so, it is necessary to make due diligence of projects before delivering them to clients.
FAQs
Q1. How Claude Code is different from current generation of AI agents/ assistants?
Ans. Claude Code is able to perform tasks more complex than previous AI assistants including writing complete software libraries, debugging already written codes to complete execution of program and reviewing pull requests when received along with automation of workflow.
Q2. What kind of projects get outsourced to India?
Ans. Most projects that get outsourced to India are repetitive tasks such as maintenance of websites