The Nifty IT index is seeing some buying interest in an otherwise falling market. On Monday, the Nifty declined 2.39% intraday, while the Nifty IT index was down just 0.27%. This is in contrast to what happened a few weeks ago, when Nifty IT was a major drag on the Nifty 50. Has the fear around Artificial Intelligence (AI) — particularly concerns about AI taking jobs and reducing paychecks — eased?
Kotak Institutional Equities believes that though Artificial Intelligence (AI) could slow hiring in India’s IT services sector, the technology could also improve productivity across the broader economy. It expects a potential shift of talent toward manufacturing, and core engineering could partly offset the disruption over time.
IT services contribute 6.5% to India’s GDP
India’s IT services exports, including Business Process Outsourcing (BPOs) and global capability centres (GCCs), account for around 6.5% of the country’s GDP. The sector employs about 1% of the workforce and contributes 6–7% of total income tax filers.
Kotak highlighted that an average IT employee earns about three to four times more than the average Indian worker. As a result, any slowdown in hiring or income growth in the sector could influence consumption patterns.
AI fears may weaken spending sentiment; IT demand unlikely to collapse
Kotak said concerns over job stability could soften sentiment among IT households. This may lead to lower spending on discretionary items and make households hesitant to take long-term financial commitments such as housing loans.
“We expect sentiment in the IT services households to turn soft, which may result in a slowdown in spending on high-ticket items,” the report said.
However, the brokerage does not expect a sharp collapse in IT services demand. Instead, it sees gradual deflation in pricing as companies adopt AI technologies.
AI could boost productivity across sectors
Kotak said AI could bring meaningful productivity gains to the broader economy. For example, the technology can help financial institutions improve credit assessment, pricing models and risk management.
This could reduce potential non-performing loans and encourage lenders to expand credit growth.
Lower costs of IT projects due to AI could also allow companies to undertake more digital initiatives within existing budgets.
IT professionals may move into non-IT industries
The report also sees a possible shift in the labour market if IT hiring slows. Some engineers may pursue careers in core engineering sectors such as industrial manufacturing instead of software services.
In addition, IT professionals moving to non-IT companies could help improve efficiency and technology adoption in other sectors.
Kotak said India needs to accelerate its push towards manufacturing to convert these structural shifts into an economic advantage.
Conclusion
Kotak Institutional Equities believes that fears of widespread job losses may be overstated. It said that India’s services sector contributes a large share to GDP but employs a relatively smaller share of the workforce in formal jobs so the economic impact won’t be much.
It also said that because a large portion of employment remains informal, disruptions to white-collar roles may not have a significant impact on overall employment levels in the short term.