Indian IT stocks witnessed a sharp decline following OpenAI's strategic acquisition of consulting and engineering firm Tomoro, fuelling investor concerns over the long-term viability of traditional IT service business models amidst the accelerating shift towards AI-led automation.
Key Points
- Domestic IT stocks in India slumped after OpenAI acquired consulting firm Tomoro, aiming to deepen enterprise adoption of AI software.
- The Nifty IT index fell 3.73 per cent to its lowest closing level since May 2023, having shed over a fourth of its value this year.
- Market participants fear OpenAI's move signals global AI firms expanding into consulting and implementation, traditionally revenue drivers for Indian IT companies.
- Analysts suggest OpenAI's 'Deployment Company' unit and 'Forward Deployed Engineers' pose a structural threat to traditional billable-hour models.
- Despite near-term concerns, some analysts maintain a positive medium to long-term outlook, believing system integrators will remain crucial for customising enterprise AI deployments.
Domestic information technology (IT) stocks slumped on Tuesday, mirroring losses in their US-listed peers, after OpenAI announced the acquisition of consulting and engineering firm Tomoro as part of its push to deepen enterprise adoption of artificial intelligence (AI) software.
The Nifty IT index declined 3.73 per cent to close at 28,235 — its lowest closing level since May 18, 2023.
The index has now shed more than a fourth of its value so far this year amid rising concerns over the long-term viability of traditional IT service business models in the age of AI-led automation.
Impact on Indian IT Giants
All 10 constituents of the Nifty IT index ended in the red, with frontline companies such as Infosys, Tata Consultancy Services (TCS), and HCL Technologies falling between 3 per cent and 4 per cent.
Market participants said OpenAI"s latest move heightened fears that global AI firms are increasingly expanding beyond software tools into end-to-end consulting and implementation services — areas that have traditionally driven revenues for Indian IT companies.
Structural Threat to Traditional Models
Shashwat Singh, fundamental analyst at Bajaj Broking said the launch of OpenAI"s new "Deployment Company" business unit marked "a structural threat to the traditional billable-hour models that have long sustained the global IT industry."
"By acquiring the consulting firm Tomoro and utilising "Forward Deployed Engineers", OpenAI is moving beyond model development into the high-value territory of workflow redesign and organisational transformation," Singh said.
He added that investors fear Indian IT firms could increasingly be sidelined by AI companies capable of automating and deploying their own technologies directly for clients.
Market Reaction and Long-Term Outlook
Some analysts, however, argued that the market reaction may be overstating the long-term risks from generative AI.
A note by Nuvama Institutional Equities said IT companies had delivered broadly stable March-quarter earnings.
Revenue growth, margins, and deal wins remain resilient despite macro uncertainty.
The brokerage said demand for AI-led transformation programmes and cost-optimisation initiatives continued to support deal momentum, although conversion timelines remained elongated.
"IT stocks are now reacting more to AI developments around the world than to their fundamentals and performances," Nuvama said.
The brokerage maintained a positive medium to long-term outlook on the sector, arguing that system integrators would continue to play a critical role in customising enterprise AI deployments.
While acknowledging near-term revenue cannibalisation risks, it said generative AI could eventually expand the total addressable market for IT services significantly by the end of the decade.
