Indian IT services groups turn corner as AI revenue grows

India’s IT services companies have reported a larger share of revenue from helping businesses adopt AI, in an early sign that the sector is turning a corner after fears that the technology would damage the $300bn industry.

Tata Consultancy Services and Infosys, two of the world’s largest outsourcers, said in their earnings reports this month that AI integration work now accounted for more than 10 per cent of their total revenue.

Infosys, however, cut its revenue growth forecast for the year, showing that the AI threat to the industry remains.

At TCS, the largest Indian IT services company by market capitalisation, AI revenue in the three months to the end of September rose nearly 20 per cent from the previous quarter, while at Infosys, its nearest rival, it grew 29 per cent. Other companies also reported rising revenue from AI services this month.

“AI continues to scale as a structural growth opportunity,” said K Krithivasan, chief executive of TCS.

The earnings have boosted Indian IT services shares, with the Nifty IT index rising more than 16 per cent this month. The index had declined 27 per cent from the start of the year until the beginning of October.

The sector had underperformed the broader market by a wide margin earlier this year as cutting-edge products from Anthropic and OpenAI were seen as threats to India’s most important services industry.

But the rise of cheaper models has increased the pace of AI adoption, giving outsourcers an opening to consult companies on how to incorporate the technology.

“At the start of the year we were thinking that these companies may not have a role at all to play,” said Kumar Rakesh, a sector analyst at BNP Paribas, whereas now “it starts looking like that they probably have a role to play”.

The outsourcers’ ability to integrate themselves into the global AI supply chain is crucial for the world’s most populous country.

The industry is India’s largest white-collar employer. A slowdown in the sector could increase outflows, even now at record levels, by foreign investors, who have fled Indian markets over a perceived lack of AI trades.

“The market had sort of gotten scared of the AI compression without realising the tailwinds that would go along with enterprise AI adoption,” Mohit Joshi, chief executive of Tech Mahindra, told the FT.

International clients, he said, were only just starting to build the foundations of their AI systems, giving IT services companies a long runway for more work.

“Enterprise AI adoption is still sort of at its early stages because a lot of modernisation work needs to be done before you can have a fully agentic layer within enterprises,” said Joshi, referring to AI agents that can autonomously accomplish tasks with minimal human intervention.

As the sector wins more contracts, the companies have also started hiring more people.

India’s 24 listed IT services companies have added more than 31,000 jobs since April, according to research by Mumbai-based portfolio manager Vallum Capital, double their hiring in the entire fiscal year to the end of March 2026.

“Jobs follow AI budgets,” said analysts at Vallum Capital.

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But Rakesh warned the early signs of change should be read with caution. Despite narrowly beating revenue expectations for the quarter, Infosys cut its annual revenue forecast growth by more than expected, pushing its shares down 1.2 per cent since Friday.

“We probably . . . will start reaching a stage where we start over-expecting that . . . all of the issues are getting offset,” said Rakesh. “We’ll have to be careful from that perspective.”

Analysts at Vallum Capital said the recent quarter’s results showed “Indian IT never stopped working” despite the threat posed by AI to the sector’s core outsourcing services.

“The crocodiles are still in the water, but Indian IT has learned to swim with them,” they wrote.