AI worries drag 5-year CAGR returns of India’s top IT firms

markets

• TCS, Infosys, Wipro see flat/negative 5-year CAGR returns amid IT selloff
• AI and automation tools raise investor concerns about Indian IT revenue growth
• Mutual funds keep large IT firm holdings despite weak sector performance.

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India’s oldest information technology firms — Tata Consultancy Services, Infosys and Wipro — are now trading broadly flat in terms of five-year compound annual growth rate (CAGR) returns following the recent selloff.

India’s largest IT services exporter, Tata Consultancy Services, has delivered a negative five-year CAGR return of 1.22 percent. Infosys, the country’s second-largest IT firm, has generated a modest 3.7 percent CAGR return over the same period, while Wipro, backed by Azim Premji, has posted only 1.6 percent five-year CAGR returns. LTIMindtree has posted about 6 percent CAGR returns during the period

For instance, an investment of Rs 100 made in TCS five years ago would be worth about Rs 94 today, while the same amount invested in Wipro and Infosys would have grown to roughly Rs 109 and Rs 120, respectively.

Among other large IT firms, HCL Technologies, Tech Mahindra and Mphasis have delivered around 11 percent CAGR returns over the last five years, while Nifty IT index given just 7.1 percent returns.

Selling pressure in IT stocks has persisted since the start of 2025, as long-term investors have grown increasingly concerned that the rapid rise of artificial intelligence could weigh on revenue growth prospects for Indian technology companies. Market participants have linked rising AI adoption to slower technology spending across key Western markets, which account for a significant share of revenues for Indian IT firms.

The recent selloff intensified following the launch of new workplace productivity and automation tools by Anthropic. The company expanded its enterprise AI assistant by adding an automation layer capable of executing complete business workflows. The development triggered a reassessment among investors about the long-term relevance of traditional software-as-a-service platforms, as AI tools become increasingly capable of independently handling complex operational tasks.

Investors are also concerned that AI-driven automation could reduce demand for outsourced business processes and enterprise software customisation, areas that have traditionally driven revenue growth for Indian IT service providers.

Anthropic’s move also places it in more direct competition with legal AI startups such as Harvey AI and Legora. Unlike many rivals, Anthropic develops its own AI models, enabling tighter control over automation capabilities and faster deployment across enterprise workflows.

Despite the recent weakness in stock performance, mutual funds continue to maintain significant exposure to the sector. As of December 2025, mutual fund investments in Infosys stood at around Rs 1.34 lakh crore, accounting for about 2.57 percent of total equity assets under management. Investments in Tata Consultancy Services stood at around Rs 64215 crore, or about 1.22 percent of equity AUM.

Mutual funds held investments worth nearly Rs 40000 crore in HCL Technologies and around Rs 31000 crore in Tech Mahindra, while Wipro accounted for mutual fund holdings of around Rs 13500 crore.

Motilal Oswal, in its latest note, said it estimates that 30 percent to 40 percent of IT services revenues are at risk from AI-driven deflation, largely concentrated in application development, maintenance and testing services. The brokerage said that assuming a 30 percent to 50 percent productivity impact on lower-end work in these segments, nearly 9 percent to 12 percent of IT services revenues could be eliminated over the next three to four years, translating into an estimated 2 percent annual hit to revenue growth.

The brokerage added that if enterprise resource planning migration and third-party enterprise software, which account for about 10 percent to 15 percent of industry revenues, also come under AI-led disruption, the impact on the sector could be higher, making the outlook incrementally negative.

Motilal Oswal further said it will closely monitor AI-native partnerships over the next three to six months, which could emerge as key growth drivers over the next 12 to 14 months. The brokerage expects an acceleration in AI partnerships and believes this could lead to a pickup in AI services deals by mid-2026, primarily through short-cycle deals, while maintaining a cautious but stable outlook on the sector.