IT Stocks: Are Markets Overreacting to the Anthropic Scare?

Since the start of February 2025, Indian IT stocks have seen a sharp correction. The cumulative erosion in market value has been to the tune of $50 billion, with the decline most pronounced in large-cap IT companies that continue to derive a major share of revenues from legacy services.

The correction has raised an important question. Are markets pricing in a genuine structural disruption, or are they reacting disproportionately to uncertainty around AI-driven automation, particularly after the announcement from Anthropic?

To answer that, it is necessary to separate price action from long-term fundamentals.

What the Market Is Signalling

The divergence between broader markets and IT stocks in 2025 has been stark.

• The Nifty index is up 8.3% for calendar year 2025.
• The IT index has fallen 16.7%.
• That translates into an underperformance of 25 percentage points.

This is not just short-term volatility. It represents a sustained shift in investor sentiment toward the sector.

Foreign portfolio investor behaviour reinforces this trend.

• FPIs have sold Indian IT stocks worth $8.50 billion in 2025.
• This accounts for 45% of total net FPI selling in India during the year.

Nearly half of the foreign selling in Indian equities has been concentrated in IT. Markets are often described as behaving like a slot machine in the short term but like a weighing machine over the long term. The current price action suggests that investors are weighing in a structural risk rather than reacting to a one-off headline.

Understanding the Anthropic Concern

Anthropic, currently valued at approximately $380 billion, has introduced an automation platform positioned as a SaaS-style product. The concern is straightforward.

If enterprises adopt advanced AI automation tools, the need for large-scale IT outsourcing for application development, maintenance, and infrastructure management could reduce.

Indian IT companies such as TCS, Infosys, Wipro, and HCL Tech have traditionally dominated the global outsourcing landscape. A significant portion of their revenues comes from managing legacy systems and enterprise applications for global clients.

Anthropic’s platform represents:

• AI-led automation of repetitive IT processes
• Faster deployment cycles
• Lower dependence on manual intervention

This comes at a time when global corporates are already cautious about IT spending. Budget rationalisation over the past year has already slowed growth in Indian IT.

The fear, therefore, is not isolated to Anthropic alone. It is about the broader acceleration of AI automation in enterprise technology.

How Big Could the Revenue Impact Be?

To assess the scale of the risk, it is important to look at revenue composition.

Major Indian IT companies derive roughly 70% to 80% of revenues from application services and infrastructure services. These are precisely the areas most susceptible to automation.

Brokerage estimates offer a range of views:

• Motilal Oswal estimates that over the next four years, 10% to 12% of IT revenues could be eliminated due to AI-driven automation.
• Jefferies suggests that losses in legacy revenue streams may offset gains from new AI-led initiatives.
• Kotak and JP Morgan argue that the risks are being overstated.

The more conservative view is rooted in enterprise behaviour. Mission-critical enterprise software systems are not replaced overnight. Large corporations tend to move cautiously, especially when dealing with core systems that underpin operations.

While the direction of change is clear, the pace and magnitude remain uncertain.

Is This a Valuation Shock or a Business Model Shift?

The current correction appears to reflect concerns around business model evolution rather than immediate earnings collapse.

There are two distinct risks:

• Valuation Risk: IT companies have historically traded at premium multiples due to high return on equity, strong cash flows, and consistent execution. When growth visibility declines, valuations compress.
• Business Model Risk: If AI significantly reduces demand for traditional outsourcing, companies that fail to adapt may face structural decline.

Indian IT has successfully navigated multiple transitions over the past three decades.

• From traditional maintenance contracts to BFSI-focused global outsourcing
• From on-premise solutions to SMAC (Social, Mobility, Analytics, Cloud)
• From SMAC to AI and machine learning integration

In each phase, Indian IT firms retooled their capabilities and moved up the value chain. The current disruption is not about extinction. It is about speed of adaptation.

What History Suggests

Over the last 30 years, Indian IT has built a global reputation for:

• Delivering complex projects within defined timelines
• Cost efficiency and operational discipline
• Strong return on equity compared to most other Indian sectors

Even today, IT remains a major contributor to corporate ROE in India’s macro earnings profile.

Anthropic's platform is a signal that enterprise technology is evolving faster. It is not, at this stage, proof of permanent revenue destruction.

The risk is more about whether Indian IT companies can reposition themselves quickly toward:

• AI integration services
• Custom enterprise AI deployment
• Platform consulting
• AI governance and cybersecurity

If automation reduces repetitive work, demand may shift toward higher-value advisory and integration roles.

Are Markets Overreacting?

The market’s reaction reflects uncertainty rather than definitive structural collapse.

The $50 billion erosion in market capitalisation suggests that investors are pricing in a scenario of meaningful revenue disruption.

However:

• Broker estimates indicate revenue erosion of 10–12% over four years, not overnight collapse.
• Enterprise clients are unlikely to replace mission-critical systems abruptly.
• Indian IT companies have historically demonstrated adaptability.

Markets tend to front-load uncertainty. When the narrative shifts toward structural disruption, valuations adjust quickly.

Whether this adjustment proves excessive will depend on execution over the next two to three years.

Key Takeaways

• Indian IT stocks have lost $50 billion in market value since February 2025.
• The IT index has fallen 16.7% while the Nifty has risen 8.3%, leading to 25% underperformance.
• FPIs have sold $8.50 billion worth of IT stocks, accounting for 45% of total net FPI selling.
• 70–80% of IT revenues are exposed to services potentially impacted by AI automation.
• Broker estimates suggest 10–12% revenue erosion over four years, though views differ on severity.
• The core risk lies in business model adaptation, not immediate sector collapse.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Market investments are subject to risks. Investors should evaluate their financial situation carefully and consult a qualified financial professional before making investment decisions.