As AI roils shares of India’s largest IT firms, their share in Sensex falls to lowest in 18 years

The overall weightage of IT companies in the BSE Sensex fell to an 18-year low. Bloomberg Their share in the Nifty 50 index is weakening to a decade-long trough, data shows. IT stocks now account for just 11.3% of the Sensex weight; This is the lowest level since it fell to 8.8% in 2007. Four of the top five IT stocks include Sensex, Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd and Tech Mahindra Ltd; Wipro Ltd, once a powerful firm, was spun out last year.

The final slide was in line with the November 2022 launch of OpenAI’s ChatGPT, an event seen as a turning point for the country’s nearly $283 billion IT services industry. This innovation, combined with the relentless rise of automation and persistent visa issues restricting labor mobility in the United States, has disrupted traditional business models, slowed revenues and moderated stock prices, ultimately reducing index weightings. This steep decline marks a significant erosion from the peak at the end of 2021, when IT shares accounted for around 18.56% of the index.

fall days

The crisis is equally evident in Nifty. “We observed that the share of IT services in Nifty profit has remained stable at 15% for the last four years, whereas its weightage in the benchmark index is currently at a decade low of 10% (compared to a peak of 19% in December 2021),” analysts Abhishek Pathak, Keval Bhagat and Tushar Dhonde of Motilal Oswal Financial Services said in a recent note.

The decline in index weighting is a direct result of the relative decline in the market capitalizations of these tech giants. A company’s index weight is calculated by dividing its market capitalization by the index’s total market value. A lower weight means relatively underperformance in the share price compared to the rest of the index.

Since the beginning of the year, shares of the top five firms have seen sharp declines: TCS is down 23.47%, Infosys is down 17%, HCLTech is down 14.74%, Wipro is down 17.14% and Tech Mahindra is down 9.97%. In contrast, BSE Sensex gained 8.64% in the same period, highlighting the sector’s struggle with investor confidence.

Companies’ financial health and growth outlooks have also taken a hit, evidenced by price-to-earnings (P/E) ratios reaching multi-year lows; While TCS (23.7 P/E) and Infosys (24.4 P/E) are trading at their lowest levels in at least five years, HCLTech (25.8 P/E) and Wipro (20.3 P/E) are at three-year lows.

F/C pain

A lower P/E ratio, which measures share price relative to earnings per share, indicates a weak growth outlook and declining valuations. This is a decision driven by investors regarding the near-term prospects of the industry.

Amit Chandra, vice president, HDFC Securities, attributes this decline to a combination of factors: “Automation, geopolitical uncertainties, weak discretionary spending and fewer big ticket deals impacted growth for IT players, leading to a decline in weight.” Discretionary spending, which is customers’ non-essential projects, is a critical growth driver for the sector, and its withdrawal underscores customers’ caution.

Analysts point to a deeper structural challenge beyond economic cycles: the inability of traditional IT outsourcers to quickly adapt to GenAI-led change.

Phil Fersht, CEO of HFS Research, argues that the underweight signals “the market is recalibrating expectations during a major technology transition.” “Automation and new delivery models are disrupting the traditional service engine. Investors want to see how quickly these firms can turn automation into new revenue streams rather than pure cost. The underweight reflects the belief that the next phase of value creation in IT services will look very different from the last 20 years.”

GenAI’s “deflationary effect” is already eating into revenues as automation tools replace manual labor and lead to reduced billable hours. This dynamic contributed to the Big Five growing last fiscal year at their slowest collective pace in a decade. TCS, Infosys and HCLTech delivered single-digit annual revenue growth, while Wipro and Tech Mahindra, JPMorgan Chase & Co. and Microsoft Corp. It saw marginal declines as it grappled with uncertain demand from large customers such as

automation ledge

Thomas Reuner, principal analyst at Pierre Audoin Consultants, emphasized the need for a fundamental strategic axis. “Indian service providers need to adapt to the long-term trend of decoupling service delivery from labor arbitrage,” he said, adding that while automation is an ongoing shift, the scaling of “Agent AI” (artificial intelligence capable of making decisions with minimal human intervention) is progressing at a slower pace than commentators often suggest.

Despite the current headwinds, a segment of the brokerage community sees the current lows as a potential buying opportunity and believes there will ultimately be an AI-driven recovery.

Analysts at Motilal Oswal believe that risks are “tilted to the upside”, arguing that current valuations are “already baked into the status quo (GenAI-led deflation, demand apathy)”. A significant growth recovery is forecast from September 2026 “as businesses enter into full-scale AI deployment.”

HDFC’s Chandra echoed this optimism, predicting that a new technology cycle will attract investors’ attention. “There has been capital expenditure on data centers and artificial intelligence infrastructure in the USA. Now companies need applications to run these centers, and this is where system integrators will be needed,” he said.

Additionally, anticipated macroeconomic changes in the United States could provide a vital headwind. Pramod Gubbi, co-founder of Marcellus Investment Managers, expects a rise due to the impact of the US Federal Reserve’s expected lending rate cuts. “The US Fed is more likely to cut interest rates and this has generally supported a rally in IT stocks as businesses are expected to loosen wallet ties for further IT upgrades,” Gubbi said. Lower borrowing costs allow clients to finance larger, transformative technology projects, including the significant integration of artificial intelligence solutions.

For now, industry heavyweights like Infosys (5.49% Sensex weight) and TCS (3.17%) remain the largest constituents, but their dominance is being challenged. Investors are watching carefully to see which companies can successfully transition from service providers focused on labor arbitrage to strategic partners in the era of productive AI.