The history of human civilisation is replete with examples of radical, path-breaking advancements- from a simple wheel to steam engines, electricity, and the internet. But the emergence of artificial intelligence (AI) is undoubtedly one of the most powerful, if not the greatest, inventions in human history.
AI is not a fringe technology now. It is now very much a part of mainstream businesses across sectors, reshaping and revolutionising how companies operate, and generate profits and value.
It is time we brace ourselves for a strong structural shift.
Global economy braces for AI tsunami
Almost a year ago, when the AI was rapidly growing, and there was much ambiguity on how the technology could affect the economy, PwC estimated that AI could “potentially boost global economic output by up to 15 percentage points over the next decade (by 2035).”
This translates to an addition of roughly a full 1 percentage point to annual global growth.
PwC research found that amid the rapid reconfiguration of the economy already underway, the pressure for businesses to reinvent themselves is at some of the “highest levels seen in the last 25 years across 17 out of 22 global sectors.”
Over the next few years, industries will change to adapt to AI, attempting to keep it in sync with meeting human needs.
Industries with higher AI exposure, such as IT, are in turmoil, with questions being raised about what form they will exist in the coming years.
The debate has already shifted from how AI will boost productivity to how it will impact the overall value system and human lives.
From writing a simple e-mail to coding a full website, AI’s capabilities frighten and excite at the same time.
Mustafa Suleyman, the chief executive officer of Microsoft AI, has warned that AI could replace a large share of white-collar jobs within the next 12-18 months.
However, beyond this basic economic question, a major issue lies- what will be the role of humans in an AI-dominated world?
There is no black-and-white answer to this. The economy will most likely suffer a significant disruption, but will gradually adjust to the new reality. Policy makers say AI should be human-centric and inclusive.
IT secretary S. Krishnan, in an interview with PTI, said AI must remain human-centric and inclusive, with democratic access to AI resources, and be a positive force for the global economy.
What does AI mean for stock market investors?
Global markets have seen a strong sell-off over the last few sessions amid fears of AI-led disruption. Investors are fretting over the uncertainty of how AI will boost companies, augment their productivity, and what will happen in the event of mass job losses.
In India, shares of major IT stocks, including TCS, Infosys, and Wipro, are at 52-week lows as investors grow anxious that rapid advances in artificial intelligence could erode pricing power, deal wins, and long-term earnings visibility for traditional software services companies.
While the feared collapse of the Indian IT sector appears exaggerated, the concern is that a major shift in the sector will have a ripple effect across other sectors.
The IT sector is one of the biggest job creators in India, and according to media reports, the Indian information technology and business process management sector contributes around 7–7.5% of India’s GDP.
If AI negatively affects the sector and triggers mass job losses, it will be significantly negative for most major sectors, including banking, autos, housing, and insurance, due to financial stress and rising NPAs for banks and NBFCs.
“India’s IT sector, which contributes 7–8% to GDP, is a major source of exports, FDI, and employment. A sustained downturn would cause cataclysmic macroeconomic effects,” said Manoranjan Sharma, chief economist at Infomerics Ratings.
Sharma explained that first, employment and income losses via layoffs, salary cuts, or hiring freezes would reduce the disposable incomes of urban middle-class households, weakening demand for discretionary goods, viz., automobiles, electronics, travel, and lifestyle services.
Second, real estate markets in IT hubs like Bengaluru, Hyderabad, Pune, and Gurgaon would suffer, with lower housing demand, falling prices, stalled projects, and rising stress on developers and banks.
Third, declining IT exports would widen the current account deficit and exacerbate pressure on the rupee.
Fourth, a slump could trigger stock market volatility, erode household wealth, and deter investment, given IT firms’ significant market capitalization.
Sharma highlighted that, in the end, reduced corporate profits and incomes would lower tax revenues, constrain public spending, and amplify the broader economic slowdown through multiplier effects across employment, consumption, real estate, external stability, and fiscal health.
The market may be discounting the impact of AI too much at this juncture. Experts say it is time for investors to stay nimble.
“There will be future phases when investors feel invincible, and markets will again give them opportunities—but markets will also test them. This is just a phase. In the next 1–2 quarters, things will improve,” said Ajit Mishra, SVP of Research at Religare Broking.
Some experts remain optimistic about the IT sector.
“An immediate collapse of the IT sector is exaggerated. If Indian companies can adapt to these changes and focus on using AI to increase their productivity, the damage can be limited. Indian IT companies have a track record of overcoming challenges and adapting to change,” said V.K. Vijayakumar, chief investment strategist, Geojit Investments.
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
