Investors dump stocks of IT companies slow in AI race

BENGALURU/ MUMBAI: Balancing growth with profitability is a tricky affair for companies. This is especially true for the fast-changing IT space, where tech-driven disruptions are almost a regular occurrence.

In the Indian IT sector, leading firms have been navigating intense technological disruption driven by AI, cloud adoption, and advanced analytics. Some CEOs embraced these shifts and managed to grow shareholder value over the years. Others, however, continue to struggle, and their stock prices have barely moved.




Consider this: Among the top Indian IT pack, in the last five years, shareholders in HCL Tech, which navigated the ongoing disruptions in the sector relatively well, saw their holdings jump nearly 95%. Tech Mahindra, Wipro, and Infosys, also among the Indian IT services leaders, followed closely as they also adapted to the changing landscape in the sector. Tech Mahindra's stock price is up nearly 70% during the comparable period, while Wipro is up 39%, Infosys 35%, and TCS 16%. In contrast, the stock price of Cognizant is under pressure and is down 6.5%. For the industry, represented by BSE's IT index, the gain was 67% (US-listed Cognizant is not a constituent of the BSE index).

In the more recent past, however, most Indian IT companies have struggled to fully meet evolving global customer demands, and their stocks have underperformed. In the last one year, TCS is down 23%, Infosys down 18%, Wipro 13%, and HCL Tech 13%.

According to industry analysts, balancing growth with profitability was not easy for top IT leaders, and many CEOs struggled to strike that equilibrium. In the process, several companies failed to deploy their large cash reserves effectively toward emerging technologies, unlike global peers. For instance, Accenture moved faster to build next-generation capabilities. Accenture highlighted that its early decision in FY23 to commit $3 billion over multiple years to lead in generative AI is paying off. In FY25, revenue from generative and agentic AI tripled from FY24 to $2.7 billion. Among its Indian peers, however, the adoption of AI at an enterprise level is still a major challenge, particularly due to pricing pressure, workforce readiness, and the difficulty of scaling proofs of concept from pilots to revenue.

Phil Fersht, CEO of HfS Research, a US-based advisory firm, said investors were rewarding firms that converted AI into measurable productivity. "Price moves across these major services firms reflect three things more than headline leadership changes: the mix of North America demand, exposure to discretionary deals, and how convincingly each firm is turning AI talk into AI revenue."

In the last year, the BSE IT index is down 14%, while the two benchmark indices are each up: Nifty is up 10% and Sensex 9%. According to Ram Medury, founder & CEO of Maxiom Wealth, a Hyderabad-based wealth management outfit, the Indian IT industry is clearly in transition. “If you look at the IT index, returns have been muted because most of these firms are now very large. Today, they are behemoths — and, in many ways, prisoners of their existing business models," he said. “As a fund manager, I've shifted focus to smaller, niche tech firms that use AI to solve specific problems. These players are far nimbler and better positioned to capture the next wave of growth,” Medury added. Larger Indian IT firms need to quickly raise their game at this critical juncture to reward shareholders handsomely.

Ramkumar Ramamoorthy, partner at a tech growth advisory firm Catalincs, said that the top 5 India-centric IT services companies, on a combined basis, now have a less than 15% global market share. “So, the headroom for growth is significant. (These) companies should not be obsessed with managing downside risk but be fixated on capitalising on upside opportunities driven by AI and related digital technologies.” Ramamoorthy believes rather than expanding their margins and increasing payout to investors, these companies need to reinvest the margin dollars to reinvent themselves. “If not, they will continue to be challenged for long-term growth, and this will be reflected in their stock price and valuation.”



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