AI Shakes Up Indian IT: Why TCS & Infosys Struggle While Niche Firms Thrive

India’s largest IT companies are grappling with the disruptive force of artificial intelligence, while specialized midcap and smallcap players are surging ahead. Market expert Sudip Bandyopadhyay warns that giants like TCS and Infosys have been slow to lead the AI revolution, leaving room for niche firms in sectors like travel and electric vehicles to capture growth.

The Harsh Reality for Indian IT Leaders

Bandyopadhyay candidly admitted that frontline IT firms have “missed the bus” on AI. Without proprietary tools, they rely on third-party solutions, eroding the cost-arbitrage advantage that sustained their margins for decades.

Painful Transition for TCS and Infosys

Despite confidence in their ability to adapt, restructuring will be difficult. TCS recently cut 20,000–30,000 jobs, while simultaneously investing billions in AI and cloud infrastructure. Roles are shifting from routine outsourcing tasks to advanced technology services, mirroring global trends at companies like Amazon.

Valuations Under Pressure

Bandyopadhyay cautions that IT sector valuations remain inflated. Margins, delivery models, and performance will face stress, leading to further corrections. While dividends and buybacks provide some cushion, outsized returns from large-cap IT firms appear unlikely in the near future.

Niche IT Specialists Seize the Opportunity

Specialized firms are thriving by focusing on high-growth verticals:

• RateGain Technologies in travel and hospitality tech, leveraging AI for competitive advantage.

• Tata Technologies in automotive engineering, supporting the EV transition.

• Coforge and Persistent Systems, carving out strong positions in targeted verticals insulated from margin compression.

These companies built AI capabilities early, giving them a decisive edge over generalist IT giants.

The New IT Investment Playbook

Investors are advised to shift focus from large-cap stalwarts to midcap and smallcap IT firms with concentrated business models and proven AI strategies. Sector-wide diversification may underperform compared to selective bets on specialized winners.

Large-Cap IT: Hold, But Adjust Expectations

TCS, Infosys, and peers will continue to deliver steady dividends and maintain strong order books, but the era of consistent outperformance is over. Investors must monitor which firms adapt effectively to AI disruption.

Jobs Will Transform, Not Disappear

Drawing parallels with computerization decades ago, Bandyopadhyay noted that AI won’t eliminate jobs entirely but will reshape them. Just as ATMs changed banking roles without erasing them, AI will evolve IT jobs toward higher-value tasks.

🔒 Rephrased Disclaimer

This article is intended for informational purposes only and should not be taken as investment advice. The stock views expressed are those of the cited expert and do not represent endorsements by this publication. Investors should conduct independent research and consult qualified financial advisors before making decisions.