Capgemini falls as WNS deal raises questions over AI's business impact

** Shares in French IT services firm Capgemini CAP fall more than 5% to their lowest price since late April, after it agreed to buy WNS WNS for $3.3 billion of cash

** Analysts from Morgan Stanley say investors are concerned over the impact of Gen AI on the business process outsourcing (BPO) market that Capgemini wants to develop into

** "The bear case is that new technology would shift BPO from a people intensive business to one which is much more highly automated and managed by software and not people" - MS

** This could mean reduction of BPO revenues and exposure of incumbent vendors to competition from new entrants, MS adds

** "We expect investors to be able to see the opportunity that could come from disrupting BPO with Gen AI but think some evidence will be needed to convince the market WNS is the right vehicle," MS says

** The analysts add WNS is not large enough to be transformational to Capgemini's financials, while the deal is using up its balance sheet firepower for a couple of years

** Capgemini's shares are at the bottom of Europe's benchmark STOXX 600 index SXXP