Markets Take A Fresh AI Hit
India's IT industry put up a fighting front at the NASSCOM Technology Leadership Forum 2026
On Episode 807 of The Core Report, financial journalist Govindraj Ethiraj talks to Noshir Kaka, Senior Partner at Mckinsey as well as Akhilesh Tuteja, Partner & National Leader, Clients and Markets at KPMG in India on the sidelines of the Nasscom Technology and Leadership Forum 2026.
SHOW NOTES
(00:00) Stories of the day
(01:00) The IT services industry could grow to $315 billion this year, up 6% says Nasscom.
(03:09) Markets take a fresh AI hit
(05:43) Where India’s next big IPOs could come from?
(07:48) The addressable market for Indian IT services companies is actually larger with AI and close to $17 trillion. Can they capture it?
Register for India Finance and Innovation Forum 2026
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.
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Good morning, it's Wednesday the 25th of February and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes…
The stock markets take a fresh AI hit.
IT services could grow to $315 billion this year, up 6% says industry body NASSCOM.
The addressable market for Indian IT services companies is actually larger with AI and close to $17 trillion, but can they capture it?
Where India's next big initial public offers could come from
And the 7,000 word what-if report that rattled IT stocks worldwide.
IT Stocks
India's IT industry put up a fighting front at the NASSCOM Technology Leadership Forum 2026 in Mumbai where the core was in full attendance, acknowledging the challenges from artificial intelligence, it nevertheless stood firm on its proposition that IT services companies would continue to implement AI for enterprises world over. The opportunity is much larger than we think it is.
Nosheer Kaka, senior partner at McKinsey, who also co-heads the consulting firms alliances and ecosystems initiatives worldwide told me in an interview that's up shortly. His comments come at a time when IT industry stocks are getting pummeled worldwide and fears that AI will cause fundamental resizing of businesses. Earlier NASSCOM, the industry body said the industry is still projecting growth.
It estimates industry revenue will hit about $315 billion in FY26 and that's a 6.1% increase led by broad-based expansion across key segments. Crucially, AI revenue, the metric every investor is aggressively tracking is estimated to land upwards of $10 to $12 billion in the same year, reflecting a clear shift from pilot projects to scaled return on investment-driven deployments, said NASSCOM. Moreover, despite more AI-led transformation, headcount is still rising and it increased by about 2.3% and some 2 million professionals were upskilled in AI, including 200 to 300,000 in advanced AI capabilities.
Now the stock markets were evidently not listening. The technology stock sell-off continued on Tuesday, thanks also to a doomsday report put out by a Citrini research and the sectoral index fell to a two-year low. IT stocks are now on course for their worst month since April 2003.
On persistent fears of AI-driven disruption, Reuters reported adding the IT index has lost about 21% so far in February and wiped out an aggregate $68.5 billion in market value from its 10 constituents. In an amazing contrast, AI-linked stocks in South Korea and Taiwan helped markets there hit record closing highs on Tuesday. And back here, if losses hold for the next three sessions, the IT index will post its worst monthly performance in about 23 years, says Reuters.
Markets
And in the markets, the correction was sharp. The Nifty was 288 points lower and the Sensex was down 1069 points, with the Sensex closing at 82,225 and the Nifty closing at 25,424. Meanwhile, India will overhaul how it calculates real GDP growth under a revised national account series, which will launch later this week, according to a senior official at the Ministry of Statistics and Programme Implementation.
Essentially, the new series will adopt a more granular price deflation, which will also address concerns raised by economists, or hopefully will address. India measures real GDP, which adjusts for inflation by deflating nominal GDP growth using price indices.
Economists have raised concerns that the method is outdated as it relies more on the Wholesale Price Index and not the more closely tracked Consumer Price Index, and Reuters quoted the Secretary in the Ministry of Statistics and Programme Implementation, saying that India will now use about 500 to 600 items from the new CPI and the old WPI, that's the Wholesale Price Index series, compared to about 180 earlier. This is to deflate the output and improve accuracy of the data. He said this practise will continue until a revised WPI series is released, which is shortly.
Under previous methods, low nominal GDP growth alongside low Wholesale Inflation created discrepancies by translating into higher real growth rates, says this Reuters report. Meanwhile, under the old series, the GDP is expected to grow 7.4% in 2025-26, and this is against 6.5% in 2024-25. Elsewhere, currency markets, the rupee was slightly lower on Tuesday, thanks to, of course, the fall in stocks that we've talked about, but also the is now very strong, which is affecting obviously more than just currencies.
The rupee closed at Rs 90.95, down slightly for the day. Gold prices were also down 1% on Tuesday, after a three-week high hit earlier in the same session, thanks once again to the strong dollar, among other factors, according to a Reuters report, which added that gold was at about $5,174 per ounce. This finance segment is presented by India Finance and Innovation Forum 2026, being held from the 16th to the 18th of March at the World Trade Centre CAF Parade in the city, and you can find the link to register in the show notes.
Indian IPOs
Meanwhile, we've seen a spate of IPOs in the last year, and obviously from private sector enterprises, and this time it looks like the government is also set to enter the frame the next three years with some large ones. The government aims to raise about Rs 179,000 crore or $20 billion from selling stakes in public sector units through IPOs by the 2029-30 financial year, after having somewhat pulled away from outright privatisation plans. Reuters reported Niti Aayog, the government's policy think tank, saying that the IPOs will be part of a broader push to raise about $183 billion by monetising state assets over the next four years.
Sectors could include railway power, petroleum and natural gas, aviation and coal sectors, according to Niti Aayog.
Trump Tariffs
U.S. President Donald Trump's new 10% global tariffs were entered into effect on Tuesday, kicking off a White House effort to preserve his trade agenda after the Supreme Court struck down his original sweeping duties. The president signed an executive order last Friday authorising the 10% import tax just hours after the ruling.
He subsequently threatened to raise it to 15%, but did not officially issue a directive to increase the rate by Tuesday, 12.01 a.m., Washington time, when the 10% went into effect. Reuters is reporting that the White House is working on a formal order that will increase the global tariff rate to 15%, though the timeline has not been finalised. The lack of clarity is obviously again triggering confusion around the world.
And as we reported yesterday as well, major trading partners, including the European Union and India, have abruptly halted ongoing trade negotiations. Priyanka Kishore, an economist based out of Singapore who joins us on our show regularly, noted that the new universal tariff is in effect and it's 10% now for the next 150 days and not with lots of carve-outs. She says almost every trade agreement that the Trump administration has negotiated so far has a higher reciprocal rate built in, except for the UK, Argentina, and some smaller Central American countries.
AI Optimism
India's software industry is projected to grow to $315 billion this year, up 6.1% according to projections from industry body NASSCOM. I caught up with Nosheer Kaka, senior partner at McKinsey, on the sidelines of the NASSCOM Technology Leadership Forum, and I began by asking him how he was looking at the overall industry landscape for IT services.
INTERVIEW TRANSCRIPT
Noshir Kaka: I don't know how many times every so-called industry watcher has written off the industry, right?
If you go back to Y2K, right? Everyone said, oh, we'll wake up on Jan 2nd and say there's no work, right? And actually the industry doubled.
And then we said, oh, you know what? SaaS is around the corner and SaaS software is going to need services. And actually the industry grew even more.
And then we said, well, digital is around the corner and we don't really have the skill sets. Will we be able to retrain the workforce so fast? Will we actually catch up to what is this?
And the industry grew more. So, my view is it's a little bit of the same, which is that the industry continues to have far more opportunity in front of it than we had ever seen before. The TAM, if I could argue that the target addressable market for this industry, if anything, has gone up by a factor in the last two or three years.
And I'll explain why do I say that. At the same time, we should recognise that this shift is probably the single largest shift since the induction or introduction of this industry through offshoring 20, 25, 30 years ago. It is a massive, massive shift because it is not only a shift because it will lead to compression of some of the existing service lines.
It will lead to fundamental changes in the operating model of both the enterprise and the providers. It'll lead to changes in the commercial models and it'll definitely lead to changes in the talent model. So, it is one of the most significant shifts we have ever seen.
At the same time, the opportunity in front of us is probably equivalent to the size of the industry today.
Govindraj Ethiraj: So, which means double what it is. So, if you're saying projected to 315, you're saying it's a $630 billion opportunity.
Noshir Kaka: We think actually by 2035, a little bit longer, we can clearly see a path to 650, 750 million. Now, will we get there? That's the question of will we change fast enough?
Will we get the right inputs in and so on? But it's not for lack of opportunity.
Govindraj Ethiraj: So, can you explain that a little more? So, as the industry as we understand it and what it is made up of, I mean, leadership.
Noshir Kaka: So, it's very simple, right? So, if you think about traditionally what we talk about the tech services industry, that if you look globally, onshore, offshore, insource, outsource, it's about a $3 trillion TAM. Next to it is the software TAM.
The software TAM is $2 trillion, okay? And what AI has done is fundamentally allowed services to access a software TAM and vice versa, right? So, suddenly from $3 trillion, you've gone to $5 trillion.
So, 60% jump straight away. Now, put that $5 trillion aside. If I look at all skills globally that are domain intensive, high-end skills, right?
Your skills, my skills, investment banking, you know, journalists, anything. There's about 20, 30, 40% of anyone's jobs that are composed of tasks that actually can be done today by agents or some form of tech intervention. That TAM is a $15 trillion TAM, okay?
So, one way of looking at it is this AI intervention, yes, it's caused compression in the tech services TAM, which is a $3 trillion TAM. It's given you access to up to $17 trillion more. And that's the opportunity in front of it.
So, stop thinking about it as tech services and start calling it any professional services. Any professional services today is going to be enabled by technology, your job, my job, right? And that's the opportunity in front of this industry.
Govindraj Ethiraj: So, two questions. First is, if I can ask you for an example, and if you were to flip it around and you said, okay, instead of, let's say, $5 trillion, it's potentially $17 trillion. So, which means if I were to now break that up into enterprises, so let's take a large retail chain or a insurance company or a bank, can you explain how this would work from their side, from the demand side?
Noshir Kaka: I'll give you a very live example, which we worked on pretty much over the last 18 months. Take medical as a profession, right? Doctors, nurses, and so on.
Now, doctors, nurses, obviously are deployed in hospitals and healthcare facilities. But there's a large need for medical practitioners in actually other parts of the industry, right? For example, like if you and I had to file a claim today and that claim got rejected, we would give it to a third party intermediary who would employ doctors and nurses to go through your medical record, go through what the hospital or healthcare provider has done for you, say what was the claim you filed, say what went back to the insurance company, why they rejected it.
That entire process comprises of about 400 individual tasks, very domain intensive, right? Because you have to actually understand medicine of what's wrong with you or me when you submit a claim. You work with a company that basically identified it completely.
And so now, not only their claims actually get passed more often, instead of those 400 or 600 steps can actually be done in fraction of the time, their business is growing 20% a year, right? They've not let any people go because that growth is actually absorbing all the headcount that is actually released. But more importantly, they're releasing their doctors and their medical practitioners where judgement is really required, right?
That's the way you're actually making a job content better while removing the level of tasks and scrutiny. For example, you and I would not be able to look at all the health record codes and memorise them, right? The looking up of the code and say, okay, this is actually what this particular disease was.
But LLMs can do that instantly. And so you can take any task, any domain, any workflow, and fundamentally reimagine it for better effectiveness. You can also get efficiency as a result of it.
But that's how, you know, for example, we would never think about doctors and nurses as a pool we would target from our tech services industry. But today you can.
Govindraj Ethiraj: Okay, so now on the other side, how are we positioned in terms of our skill sets, our capability? Because this sounds like what you do, which is McKinsey, which is at the top end of consulting, whereas when we talk about IT services, consulting is there, but that's only a small portion. And really a lot of it is the tech stack and or the building of the tech stack and so on.
Noshir Kaka: So there's no question that any service provider will have to augment their skills, whether it's McKinsey or anyone else, right? But two, three things are important to that. So firstly, even if I look at tech, just the tech side, from our work and from our surveys that we've done in December of 25, we spoke to about 600 plus CIOs, CTOs.
On average, 72 plus percent are going to increase their tech budgets by at least six percent to start off with. Now, if you look at where they are spending that money, they are spending all of that money, for example, in actually extracting value, like I said, out of business processes or particular domains, modernising their tech stack. These are all areas where actually services companies are the incumbents.
You can't modernise your tech stack as yet through an LLM, right? So if you look at that, services companies are well positioned to capture incremental spend even within tech services. Forget about the additional time that I talked about.
The second thing to note is that data and AI is a massive net new spend that most companies are investing behind, and they are actually growing that data and AI spend 30 percent organically, 70 percent by repurposing spend from other areas. That's the compression you're seeing. So if I'm a CIO, let's say I have a hundred budget, I've got to spend 120, right?
I get about eight, nine, whatever dollars more from my CEO. I still got to find 13, 15. That 13, 15 is coming from compressing the existing spend that I have.
And that's the compression you're seeing on the industry today, right? And that's, frankly, compression we saw even in digital. When digital came around, we said, oh, what's going to happen?
Legacy modernisation is going to go down. And sure enough, it went down by four to six percent, but that incremental spend went to digital. So even in tech services, which is the core of this so-called attack, we're actually seeing enterprise tech spending go up and services players are best positioned in the stack amongst LLM software and so on to actually capture that incremental spend.
Whether they do it or not is entirely dependent on how fast they move, right? And whether they're able to change the proposition, the four, five areas that I talked about. But there's no doubt that on paper today, services are not badly positioned to get that incremental spend.
Govindraj Ethiraj: You're sounding optimistic, but the financial markets, for example, are not, whether in India or outside. And there is considerable loom right now when it comes to services companies in IT. Second is, and to go back, because I'm not sure you fully answered that.
So is it the same companies that will do it? Will they be half their size? Even though they will do maybe a good job, they will grow their revenue.
There'll be some fundamental shifts.
Noshir Kaka: So two or three things, right? I can't speak for the financial markets, because if I understood it, I wouldn't be a consultant. I would be probably, you know, investing my money somewhere.
But I will just say that the facts I see are the facts that are on the ground, right? No enterprise is cutting spending, at least in mass that I see, right? Most people are incrementally increasing their spending.
That spending is going into data and AI platform, data modernisation and so on. Very attuned to this. And even if I take some of the LLM players, right, that have actually come out and made announcements and, you know, they're growing exponentially.
They themselves are saying for every $1 that they actually see, they see $5 to $7 in services coming around them. So the opportunity is there. Now, whether an individual company, whether it's services or India-centric, keep that aside, makes these shifts, these shifts go in are not easy.
Like I said at the start, this is the single biggest revolution, evolution in my mind, the industry's gone through in 25, 30 years. It's bigger than the offshoring shift. And we took 15 years to perfect offshoring, right?
This is a massive root and branch transformation of how do we reimagine a domain? And you're right, that is some consulting capabilities that you have to add. But more importantly, how you rewire the enterprise organisation.
Because if you have, let's go back to that example I gave you, if I have 600 agents running that process, I need to change the way the process is governed. I need to change the structure. If an agent is running 24 hours, when a human comes in the next morning to supervise the agent, he or she has a long list in front of them.
How do you manage that? So the implications of this change on both the vendor community and the enterprise are massive. The people who move fast and get this right and can prove those cases are going to be extraordinary winners in services and outside.
Govindraj Ethiraj: Right. So you gave the example of hospitals and not something that would be on top of most people's mind, obviously. Any other examples that you can think of which would illustrate the opportunity?
Noshir Kaka: Take the legal profession, take journalism, take consulting, take any profession that you can actually look at. In any of our tasks, Govind, I have asked you, have you built any agents for yourself?
Govindraj Ethiraj: Sort of.
Noshir Kaka: You have. I'm happy you've done that. But you and I would both know that, you know, quite honestly, if I look at my day, there's probably 25 to 30 percent of the tasks that I do that I really shouldn't do.
And I really don't even want to do. But you have to do that because as yet there's no better like simple thing we were discussing a little early, filing of your expenses. Right.
The amount of time it takes to remember that invoice, right, to photograph it, or then somebody enters it into some system and then all of that should be identified. Right. So if I can take 20 percent of your day, 20 percent of my day and enable it through technology, that is that 15 trillion opportunity.
And I just need a fraction of it.
Govindraj Ethiraj: And we can use that time to have a drink instead. Yeah.
Noshir Kaka: As always, that's always more pleasurable than having another chat on how do I file my expenses?
Govindraj Ethiraj: Good note to end on. Thank you so much, Noshir.
Noshir Kaka: Thank you.
KPMG AI Report
While there is much focus on how IT services companies might be affected by the bedlam in the industry, there are larger benefits to be had for enterprises and, for that matter, the government.
Consulting firm KPMG has released a report titled Artificial Intelligence for Bharat, Innovation, and Inclusion at Scale. It speaks of India's advancing AI landscape and pitches India as one of the world's most scalable, inclusive, and cost-efficient AI innovation ecosystems, adding that AI could unlock $1.7 trillion in economic value by 2035. I caught up with Akhilesh Tuteja, head of Clients and Markets KPMG in India, also on the sidelines of the NASSCOM Forum, and I asked him about, among other things, what was the used case, or rather were the used cases, for AI applications that he was seeing, particularly at scale.
INTERVIEW TRANSCRIPT
Akhilesh Tuteja: Use cases are many across industries. So let's take, I will divide the use cases as India is seeing, which we saw in our report also, in broadly three categories. Things which are helping me drive efficiency, which means that I can do things faster.
I can invoice, I can process an invoice faster. I can make a particular document get summarised very fast. You can do a lot of transaction processing fast, easy things.
The second one is make the enterprise intelligent, which basically says that, you know, can I make my enterprise make smarter decision? I don't have to wait for all the data to come. The data is at my fingertips, and even system gives me the insight with a recommendation rather than just giving me dumb data.
And the third one is that, does AI help me grow both in terms of revenue and also in the net bottom line in absolute terms? And those are a little bit harder use cases, but there are many across the industry. So for example, on the retail industry, they're around hyper-personalisation.
You target somebody exactly what they want and therefore their likelihood to buy it. You do cross-sell. You do also create products which never existed before.
So today AI can create those products at scale and then you go out to do it. So example of that is, let's say, earlier everybody was to choose from the available set of off-the-shelf products. But now I can customise a physical product.
So I can, let's say for example, if a company is into wallpaper businesses, they don't need to print all the wallpapers of 20 types and stock it everywhere. They can actually print a wallpaper, what is needed for you, for your room and for your liking and do it on the fly and ship it to you so that you don't have to keep inventory of those things. So it's happening across the industry that the products are AI-led or AI-powered rather than AI just doing the enterprise fabric.
Govindraj Ethiraj: And to you, again, in the Indian context, what's a telling example, if one may say so, of application of AI, which obviously shows greater promise for the country?
Akhilesh Tuteja: I think the language and language-related thing are a greater promise because one thing which I always believe and I've said it for many, many years that a large part of the content which we see on internet or any part of digital content is largely English. Now that doesn't represent the country India when it comes to the people who consume and understand that language. So there is a lot of people who remained disconnected from digital world, even though they had access, they had nothing to consume.
Now with this AI, you can actually now translate. I'm sure when we are having this recording, you just need to press a button and my voice will come into any language. So you certainly have amplified that consumption range from one to 10, because those 90% of the people never had the access.
So to me, anything language breaks a lot of boundaries and create this scale in a big way. The second thing is anything mobile, because India always had been a mobile first or mobile broadband generation. There are a lot of services, capabilities, which are only available through large scale screen and not available through mobile.
And I think that's the big shift which we are seeing through AI. So those are the things, language and screen will be the two big denominator to drive AI.
Facebook and AMD
Meanwhile, news from Wall Street and Silicon Valley. First, Silicon Valley's Meta Platforms agreed to buy 6 gigawatts worth of Artificial Intelligence computing power from Advanced Micro Devices, or AMD, in a deal valued at more than $100 billion that could result in Meta owning as much as 10% of AMD's stock, according to Wall Street Journal, which reported the deal as announced by the companies on Tuesday and that it represents a coup for AMD in its effort to challenge NVIDIA in the market for selling graphics processing units, or GPUs, the microchips which power the AI boom. Meta will buy enough of AMD's latest chips, known as the MI450 series, to power data centres using up to 6 gigawatts of computing power over the next five years.
Okay, here's the interesting story. On Monday, the Dow Jones fell 800 points because of, as the Wall Street Journal puts it, a 7,000-word hypothetical. A vital report by a Citrini research tapped into a new strain of fears about AI painting a dark portrait of a future in which technological change inspires a race to the bottom in white-collar knowledge work.
Concerns of hyperscalers, overspending are out, worries of software industry disruption didn't go far enough, and the global intelligence crisis is about to hit. So the question, what if AI is so bullish for the economy that it's actually bearish? For the entirety of modern economic history, human intelligence has been the scarce input, Citrini wrote in a post it described as a scenario dated June 2028, not a prediction. We are now experiencing the unwind of that premium, it said in this report put together by the Wall Street Journal.
Many of Monday's moves actually aligned with the situation outlined by Citrini, in which fast-advancing AI tools allow spending cuts across industries, sparking mass white-collar unemployment and, in turn, leading to financial contagion. Software firms like Datadog, CrowdStrike, and Zscaler all fell more than 9 percent, and international business machines' 13 percent decline was its worst one-day performance since 2000. Even American Express, KKR, and Blackstone, which are all mentioned in that report, fell.
And then there was, of course, the anxiety about trade policy in the US. Many of the stocks clawed back their losses, or some of their losses, leaving investors to describe the market as trigger-happy. Analysts told Wall Street Journal that the pricing of AI-related disruption is all happening sooner than most folks anticipated, and such is the nature of an accelerating technology.
