The Infosys rally masks a deeper question: Can India’s outsourcing giants survive the age of AI?

Subscribe to enjoy similar stories. The pall of gloom around India’s outsourcing industry, a $200 billion-plus exporting powerhouse, was lifted overnight by Infosys. After the company raised its full-year sales forecast, investors took optimistic commentary from management as a sign that large client orders are coming back.

The stock, which also trades in New York, surged more than 10%. But what if the celebrations are a tad premature? Both Bengaluru-based Infosys and its larger rival, Tata Consultancy Service, are facing near-term pressure on profits. TCS reported a 14% decline in net income this week, missing analysts’ estimates.

Infosys registered a 2.2% drop. Last quarter’s turbulence can be chalked up to the impact of India’s new labour codes—employers have been forced to bump up gratuity and other compensation liabilities. The more important question on investors’ minds is about the long-term viability of the sector itself.

Outsourcing companies employ a hybrid model: engineers sent to clients’ offices and factories around the world coordinate with large teams of coders back in India. In the US, the largest market, the Trump administration’s overhaul of the H-1B work visa programme, which now comes with a steep $100,000 fee for new entrants, will raise costs. At the same time, large orders for enterprise software that have put as many as 6 million coders on the path to middle-class livelihoods are drying up.

Some of it is because of the global trade war. Clients are reluctant to invest in technology amid heightened uncertainty. More of the spending is going into so-called agentic AI—algorithms that make decisions and take action.