SaaSpocalypse papers over deeper cracks

What a week that was. All that heat and dust AI kicked up after Anthropic took to the stage with its new automation plugins. Since January 28, the S&P 500 software and services index has shed roughly 830 billion US dollars in market value. Jeffrey Favuzza, an equity trader at Jefferies, came up with a name for this and it stuck: the SaaSpocalypse (an apocalypse for software-as-a-service stocks). 

The Codex plugins were designed to automate precisely the high-volume, repetitive knowledge work that has been the bread and butter of Indian IT – contract reviews, regulatory compliance tracking, and sales forecasting, among other things.

While the first shockwave hit US and European software giants like Salesforce, Adobe, SAP and ServiceNow, the sell-off quickly engulfed Indian IT stocks.

Basically, it revealed the fragility of software business models at a time when technology promises to compress work on big IT projects from years to weeks. Is this a time of reckoning for Indian tech giants that grew into behemoths by billing on an hourly basis?

The Selloff Hits Home: Shares of Indian IT exporters slumped 6.3 per cent on Wednesday as markets reeled. Infosys led the declines with a 7.3 per cent drop. Other heavyweights like TCS, Wipro and HCLTech also were hit hard.

This was the first concrete sign of AI's long-feared threat to the industry, which makes up 10 per cent of India’s GDP and directly employs 5 million people.

“The math is simple: If a US company can automate legal contract reviews internally using Codex or similar tools, why would they pay for a 50-person team in Bengaluru to do it?” Ishan Talathi, co-founder of Pune-based cloud infrastructure firm CloudPe, told Rest of World. “The Indian IT model is built on man-day billing; we charge for bodies on projects. That model is now facing existential pressure.”

This leads to an even bigger question: does this mean the job-loss warnings that have been circulating since the arrival of ChatGPT and other AI tools are finally revealing their true face? Thousands of jobs have been on the block globally since last year, notably at firms like Amazon, which has said that adoption of AI and robotics will make it a leaner, more efficient machine.

AI-Washing or Actual Threat: Yet this narrative of AI-driven displacement deserves scrutiny. How many of the companies with recent layoffs are truly adapting their workforces to the efficiencies and challenges of artificial intelligence? And how many were just using AI as an excuse to cover other problems?

In India, TCS laid off 12,000 people in 2025, citing skill mismatch, which was widely reported as due to AI-driven changes. But there was speculation about the AI link in the Kerala tech circles and entrepreneur/investor Robin Alex Panicker had flagged it as a tenuous link.

“For now, this laying-off of ~12K employees looks like an outcome of really bad planning, with most likely AI playing no role other than an internal AI tool doing the shortlisting act from the employee database,” he wrote in a LinkedIn post in July 2025.

Six months later, a similar question was raised in a New York Times article on the trend of “AI-washing,” where companies cite AI as the reason for layoffs that might actually be caused by other factors, like over-hiring during the pandemic.

AI was the stated reason for more than 50,000 layoffs in 2025, with Amazon and Pinterest among the tech companies that blamed the technology for recent cuts.

Packed Benches: But a Forrester report published in January argued: “Many companies announcing AI-related layoffs do not have mature, vetted AI applications ready to fill those roles, highlighting a trend of 'AI-washing' – attributing financially motivated cuts to future AI implementation.”

The pandemic hiring spree offers a simpler explanation. Many companies went on a massive recruitment drive during and immediately after Covid-19 in anticipation of the digital switchover during lockdowns. This was largely driven by a need to build bench strength, not just for ongoing projects but to avoid losing out on new deals due to a lack of immediate availability. This was a common strategy across major IT firms at the time.

Companies over-hired during the pandemic. They needed to fire people to save money. Couching it in AI-linked statements could save some red faces and even earn a thumbs-up from investors. 

The Elephant in the Room:  But the Codex-induced panic might be obscuring a deeper, slower-moving threat that's been eroding Indian IT's foundations for years. Long before AI agents entered the picture, multinational corporations were already finding ways to bypass the traditional outsourcing model.

International companies, big and small, have been establishing Global Capability Centres (GCCs) in different parts of India. They figured that, given the abundance of talent and cheaper labour, it made more sense to establish their own GCCs than hire backend firms that billed according to headcount and hours. Multinational corporations are increasingly choosing to build their own captive centres in India, thereby bypassing third-party vendors entirely.

As most Indian software firms have focused on services and not products, this is a disruption that has been building for some time. GCCs hired a total of around 110,000 people last year, while India's top IT companies grew their headcount by a mere 13,500 in FY25.

Adapt or Die: That doesn't necessarily mean doom and gloom for Indian IT firms if they act smart. As GCCs expand their role in India, the narrative will hinge on whether Indian software companies resist change or embrace co-creation. The most resilient will pivot from service providers to innovation partners.

For decades, India's IT success story was powered by armies of engineers and the promise of endless outsourced services. AI is now challenging that very foundation. Whether Codex lives up to its hype or fades like countless AI promises before it doesn’t matter.

The future will not belong to firms that scale by adding more people, but to those that scale by adding more intelligence – human and artificial.

India sharpens deeptech push

New Delhi is taking concrete steps to nurture the deeptech sector. Startup India has expanded the scope of the Startup India programme by formally recognising deep technology companies as a distinct category, extending their recognition period to 20 years and raising the turnover ceiling to 300 crore rupees. To qualify as a deeptech startup, an entity must meet four additional criteria beyond standard startup requirements. It must be working on new or advanced science- or engineering-based technology, spend a significant share of its funds on R&D, and create or own new intellectual property with plans to commercialise it. The Department for Promotion of Industry and Internal Trade (DPIIT) notification supersedes the startup definition issued in February 2019.

In a sign that the deeptech sector is showing more promise, Unicorn India Ventures says it has closed its third deeptech-focused fund at 1,200 crore rupees, exceeding its initial target of 1,000 crore. Unicorn says the new fund, in which the Kerala state government is also a backer, will focus on sectors such as semiconductors, spacetech and artificial intelligence (AI) infrastructure. Fund III is expected to back around 20 startups, with an average ticket size of 10-15 crore rupees. The firm plans to announce four new investments in the coming months across areas such as quantum sensing, agritech and spacetech.

BYD plans an Indian route map

India’s trade deals with the US and Europe drew headlines, but New Delhi’s growing warmth towards Beijing has flown more under the radar. The latest sign of this is an announcement by Chinese EV maker BYD. Executive vice president Stella Li revealed that engineers at their headquarters in Shenzhen are working on a new model suited to India, though she added that there is no immediate plan for a manufacturing facility in the country. In October, reports said New Delhi would soon grant quicker visas for Chinese technicians working on Indian power and infrastructure projects running on Chinese plants and technology.

Stanford duo lights path for Gen Z

One challenge student research projects face across the world is a shortage of funding. Two Stanford students say they want to tackle this hurdle in the US and have launched Breakthrough Ventures, a startup that has already secured funding worth 2 million US dollars. Co-founders Roman Scott and Itbaan Nafi hope to deploy the fund over three years, aiming to incubate at least 100 companies. They aim to make it a hub for Gen Z entrepreneurship and thought leadership, particularly given the anxiety many young people feel about their economic future. We hope this inspires students here to consider a similar venture.

Shanghai’s humanoid turns up the heat

The robotics sector is a crazy corner even by Chinese tech standards. The latest star is Moya, a humanoid from Shanghai-based DroidUp that supposedly walks, holds eye contact, and flashes subtle facial expressions. The clips online are blink-and-you-miss-it, but the claims are jaw dropping. The company says Moya has human-like proportions, can mimic micro-expressions, and even keeps a body temperature between 32 and 36 degrees Celsius – yes, a warm robot. Officially, it’s meant for healthcare, education and commercial spaces. But tech like that could attract uses well beyond the brochure.