Gurmeet Chadha, Managing Partner and CIO at Complete Circle, has pushed back against what he sees as excessive alarmism around artificial intelligence's potential impact on IT services players and overall and its impact on the economy. In his view, the narrative has swung from AI disrupting IT services to AI single-handedly triggering a recession. He mocked the exaggeration, suggesting that at this pace, people would soon claim AI would eliminate the need for basic human necessities.

His broader point was clear: fear-driven storytelling around AI has crossed reasonable limits.


However, markets have reacted sharply to concerns about AI’s disruptive potential. Overnight, International Business Machines suffered its steepest single-day drop in over 25 years after AI startup Anthropic unveiled a tool aimed at modernizing Cobol systems traditionally run on IBM computers. Anthropic in a blog post said its Claude Code platform can automate much of the analysis and exploration work involved in updating legacy Cobol infrastructure, a process that previously required years of consultant-led effort.

A fresh wave of selling hit Indian software services stocks today after a report by Citrini Research warned that companies exposed to traditional IT outsourcing models could face accelerating contract cancellations through 2027. The report flagged major players such as Tata Consultancy Services, Infosys, and Wipro as particularly vulnerable if enterprises increasingly adopt AI-driven automation tools.

The NSE Nifty IT Index dropped as much as 3.6% in a single session while many frontline IT stocks dropped to multi-year lows. Indian IT companies have effectively become Asia’s focal point for what traders are calling the “AI scare trade.” While hardware manufacturers and AI infrastructure plays across the region have rallied on optimism about data center expansion and chip demand, Indian IT services firms have been punished amid fears that automation could undercut their traditional labor-arbitrage advantage.

The sector has slid roughly 20% this month, erasing more than $54 billion in market capitalization. Investors worry that generative AI tools, including those developed by firms like Anthropic, may reduce the need for large offshore development teams and compress profit margins.

The weakness was not confined to India. US technology stocks also felt pressure, with delivery, payments, and enterprise software companies declining.

Analysts at HSBC Global Investment Research, led by Yogesh Aggarwal, warned of a potential 14%–16% gross deflationary impact on overall IT sector revenues over the next several years due to AI adoption. Meanwhile, Jefferies downgraded six Indian IT companies, citing structural shifts in business models.

According to Jefferies, AI could fundamentally alter the revenue mix of IT services firms. Consulting and implementation services tied to AI transformation may grow, but traditional managed services could shrink. This shift would likely increase cyclicality and require companies to reconfigure talent pools and operating models, introducing execution risks.

Yet not all investors share the apocalyptic outlook. Independent investor Kushal Shah, commenting on Gurmeet Chadha's post, argues that while AI’s rapid scaling and disruptive power are real, predictions of the software industry’s collapse within one to three years are overstated. Productivity gains are inevitable, he says. Over a five-year period, a 20-member team handling repetitive tasks could shrink significantly as automation takes over routine workflows.

However, capability does not equal immediate diffusion, he said. Large-scale AI deployment requires integration with legacy systems, adherence to regulatory standards, cybersecurity safeguards, and infrastructure upgrades, highlighting how technological transitions take time. Industries will adopt AI at different speeds.

Another independent investor, Kuldeep Verma, takes a macroeconomic perspective. Historically, recessions stem from monetary tightening, credit contraction, asset bubbles, energy shocks, or geopolitical crises. AI-driven productivity improvements, by contrast, tend to lower costs while expanding output. Productivity booms may create deflationary pressures in pricing but are typically expansionary in terms of economic capacity, he said.

Artificial intelligence does not create an opportunity gap; the real issue is how effectively businesses use it, said Nandan Nilekani, chairman of Infosys, at the company’s recent Investor AI Day 2026. He noted that technology is advancing faster than enterprises can deploy it, as AI adoption requires deep organisational change and it presents a big opportunity for IT services companies like Infosys, he said.