Why Indian IT companies face a rough ride in the AI era

The transition to Artificial Intelligence may seem like a productivity boom for the IT sector — but for Indian IT companies, it poses a near-term threat before any real opportunity, says Sridhar Sivaram, Investment Director at Enam Holdings in a conversation with Moneycontrol’s N Mahalakshmi on The Wealth Formula podcast.

Sivaram, a bear on the sector, sees AI as a disruptive force that’s already denting the low-end pyramid of India’s IT workforce. “Thirty percent of IT employees are in the 1 to 3 years’ experience bracket, typically doing low-end work. Look at the last two years of hiring. Are they hiring? No. Last year was flat. The year before that, almost negative for the top few IT companies,” he said.

While bulls argue AI boosts productivity, Sivaram warns that clients are also aware of these gains and are demanding lower rates accordingly. “The productivity gains don’t stay with you. If margins are going up, you’re keeping the benefit. But if margins are flat or declining, the client is taking it,” he explained.

Margins today, he points out, are largely flat — evidence that the benefit of AI is not translating into profit. “It’s a very disruptive phase, and companies are stuck in the quarter-on-quarter rut,” he said.