February 15, 2026

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THE AI THREAT

FOR YEARS, IT services companies followed a simple math: win a deal in the US or Europe, ship work to India, add more people, bill more hours. Their scale, skill and manpower turned the country into the world's largest back office. The industry they shaped ballooned to around $300 billion, employing six million and transforming Bengaluru, Hyderabad and Gurugram into global IT services hubs. That story may be facing its biggest risk yetAsk Anthropic CEO Dario Amodei. "I think…I don't know…we might be six to 12 months from when the model is doing most, maybe all of what SWEs (software engineers) do, end to end," he said at the just-concluded World Economic Forum (WEF)`The model' is short for generative AI and agentic systems. When code can be produced, tested, documented and even operated by machines, the linear growth of revenue and headcount can no longer be taken for grantedThe signals are visible. Infosys CEO Salil Parekh said at the post earnings conference in January that the company has 500+ AI agents and is doing AI work with 90% of its top 200 clients. This `digital labour' is now increasingly running the show and could turn the outsourcing model on its headAnd the new labour codes, which increase statu- tory obligations by linking benefits more tightly to wages, have landed as one-time charges (TCS, Infosys, HCLTech and Wipro together took a `5,000 crore hit in the third quarter of FY26). In an industry where people costs are 60­70% of the P&L, such charges make automation more attractivePut together AI's ability to write code, clients squeezing budgets, rising labour costs, tariff headwinds, challenging geopolitics and difficulties of getting a US visa and you get a sector that's still huge and relevant but no longer guaranteed to grow the way it used to. The bigger question: can it change its ways and ride the AI wave instead of fighting it? OUTSOURCING CODE MORPHS American investment bank Jefferies said in a January report that "one area of AI vulnerability in India is the IT services sector, where revenue growth of listed IT companies slowed to 4% in FY25 and 1.6% in the second quarter of FY26." The BSE IT index is at 23.7x one-year forward PE, from 31x in December 2024Is it all gloom and doom? R. Ganesan, Senior Vice President & Head-Corporate, L&T Construction, explains. "Traditional IT began with functional modules--banking, trading, hospital systems--coded and maintained across decades, across languages, and embedded deep inside organisations. Now AI can write code. But validation, user-acceptance testing, functional verification, deployment, those remain controlled by experts," he says. Ganesan, who also oversees the group's technology & AI initiatives, adds, "The production support for legacy systems doesn't vanish because a new layer of AI arrives; it gets run more efficiently on top of solutions which have been created." AI automation reduces the human effort required for a task. So, could the work be done in California or Luxembourg or anywhere? "Labour arbitrage alone won't be the headline anymore, but India's advantage doesn't evaporate. It changes. Data engineering, architecture, governance, cybersecurity--these are `premium jobs' too, and offshoring can persist because India can supply experts at scale, at a lower cost than Western markets,

PROFITS AT THE BELL

INDIA'S START-UP initial public offer- ing (IPO) pipeline is humming again at the start of this year as attractive headline valuations and a seeming revival in investor appetite prompt consumer brand names, tech platforms and late-stage unicorns to line up on Dalal Street for funds. Outwardly, the mood is almost celebratory. However, a quieter, more consequential shift is taking place beneath the surface. Last year, 16 start-ups raised more than `40,000 crore from public markets. Yet only one had a record of consistent profitability. Nearly half reported a sudden swing to profits, or a sharp compression of losses, in the run-up to listing. The rest stayed in the red. With as many as 48 start-ups expected to file their share-sale papers with market regulator Securities and Exchange Board of India (Sebi) over the next 12­18 months, the pattern raises an uncomfortable question: are these profits truly a sign of these companies attaining maturity or merely optics--a result of last-mile financial optimisation? "In some cases, profitability may be driven by oneoff factors such as accounting adjustments; in others, it may reflect a more sustainable earnings trajectory," says Rahul Chandra, Managing Director of venture capital (VC) firm Arkam Ventures. "The challenge and responsibility lies with investors to distinguish between the two." That distinction requires stripping out one-time gains and tracking operating trends to determine if profitability is durable and margins are indeed improving structurallyFINE PRINT Take eyewear company Lenskart, among the largest start-up listings of recent years, which tapped the market with an IPO of `7,278 crore in OctoberNovember 2025. In financial year 2024-25 (FY25), the Peyush Bansal-led firm reported a profit of `297 crore, swinging from a loss of `10 crore in FY24, according to Tracxn, which follows start-upsThe numbers seemed to signal an inflection point. Yet, disclosures and media reports suggest that roughly `167 crore of this profit stemmed from one-time accounting gains linked to acquisition revaluationsA closer look at operating metrics offers a more layered picture. In FY24, Lenskart's revenue from operations rose 34% year-on-year (YoY) from `2,375 crore to `3,187 crore and expenses climbed 30% to `3,184 crore. In FY25, revenue growth moderated to 27%, reaching `4,039 crore even as expenses rose 25% to `3,974 crore, the company's annual reports show.