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What is the story about?
The Nifty IT index dipped over 5% on February 12, gripped by a fresh wave of anxiety that artificial intelligence could disrupt traditional software and IT services businesses.
The weakness followed a steep overnight sell-off in US-listed technology stocks and IT services ADRs after fresh advances in enterprise AI tools, including Google-owned Anthropic's new AI plug-ins that can automate tasks across fuctions, reignited fears that automation could threaten existing software business models.
Tata Consultancy Services and Wipro hit fresh 52-week lows, while others like Persistent, Coforge, LTIMindtree, MphasiS, and Oracle Finserv were all down 5-6%.
The Nifty IT Index is down over 11.5% so far this year. Over the last five years, TCS has delivered a negative 12% return, while Wipro has remained largely flat. With the latest decline, TCS' market capitalisation has slipped back below ₹10 lakh crore for the first time since December 2020.
Ed Yardeni, President of Yardi Research. said “It was kind of like Game of Thrones… and suddenly, with AI, they're [tech companies] all competing with each other.”
He warned that heavy spending on AI infrastructure is adding uncertainty for returns in the software and large-cap technology space.
Why AI may pose a deeper disruption than past tech cycles
• Incumbency Risk: Indian IT has doubled in size since the Cloud era. It is now the "dominant player" being disrupted, rather than the strong challenger.
• Cloud impacted infrastructure; AI impact is more pervasive.
• New revenue streams are small and exploratory and will not be able to offset the loss in traditional work.
HSBC also said productivity gains from AI may heighten pricing pressure, though it does not expect productivity improvements to exceed 15–20%. While they acknowledges that risks may be more credible than past tech cycles, they still expect low-teens returns from IT in 2026.
Counter views
Both Anish Shah, Group CEO and Managing Director at Mahindra Group and Venu Lambu, Managing Director and CEO of LTIMindtree, said the concerns over the impact of AI on the industry are 'overblown'.
"The death of the pyramid has been forecast multiple times over the last 30 years, at every inflection point where technologies come in, starting from Y2K, and then call centres, and then we had blockchain coming in. There are various technologies that have disrupted this industry. And the industry has always evolved," Shah said.
He said people-intensive tasks have reduced over time as new technologies improved efficiency, and AI will further enhance productivity while also creating new kinds of work. According to him, companies like Tech Mahindra that adapt quickly will benefit the most, adding that the Indian IT services industry is “in reasonable shape,” though more nimble players are likely to perform better.
Dipan Mehta of Elixir Equities agrees with Shah. He believes the AI-led sell-off in IT may be running ahead of fundamentals given that "it is an industry, which is used to disruption and on the contrary, the kind of billings, the order book position, the new contracts had improved for these companies."
Allspring Global Investment's Prashant Paroda offers a different perspective. He believes investors may be overreacting to the AI threat to IT services sector when the real risk is its muted revenue growth.
"I think it's a little bit overdone, because people are projecting that AI will sort of take over tomorrow, which you know it's probably not going to happen. So from the IT services perspective, the growth still is very muted," the emerging markets portfolio manager said, adding the AI news will come and go, and stocks will react to that.
Should you invest in IT stocks now?
While it is still too early to call the final impact of AI on software services and investors need to be careful about investments in the sector, Mehta said, “I wouldn’t be too overweight or underweight… but they could certainly be on a very, very strong watch list.”
Ashwini Agarwal, Founder and Partner, Demeter Advisor said, “Just stay away would be my sense for the moment.” He added, “When something is getting disrupted, don't stand in the way… stay away, let the chips fall where they may.”
Dinshaw Irani, CEO, Helios Mutual Fund, pointed out that they had called out the AI disruption for the IT services sector in February last year, when there were early signs of it. “I still be still don't believe there's been a reset in that segment," he said.
Dinshaw Irani’s argument is that artificial intelligence strikes at the core of India’s IT model. The industry runs on a wide base of junior employees billing large man-hours at lower costs. If AI automates that layer, billable hours shrink while the cost mix shifts upward. He questions whether higher billing rates can offset that loss, suggesting the reset in fundamentals may not be fully priced in yet.
He also believes both price correction and earnings reset may still be ahead, which means fundamentals could weaken before the sector finds a new equilibrium.
However, not everyone sees the situation as one-sided.
Deven Choksey, Managing Director, Choksey FinServ, believes the recent correction reflects genuine concern, but not necessarily a structural collapse. “I guess it is a justified sell-off to an extent,” he said, referring to the sharp erosion in market capitalisation globally due to fears around agentic artificial intelligence.
At the same time, he feels markets may have reacted a little bit in a hurry. According to him, Indian information technology companies are already adapting their business models. They are “systematically adapting to agentic AI workforce,” shifting from billing pure coding hours to offering more outcome-based solutions, and even creating “agent as a service.”
Choksey believes this shift does not take away the long-term opportunity, and if valuations fall below 20 times price to earnings ratio, some of these stocks, in fact, would become a buy-opportunity.
Where is the Nifty IT index headed?
According to Mitessh Thakkar, President - Retail Research, Bonanza Portfolio, the Nifty IT had some kind of a breakdown and has changed the narration to the negative side.
"In my weekly report I had looked at a target of around 33,700, that is the minimum which the Nifty IT could do. But in a worst-case scenario we could even head slightly lower to about 32,400," he told CNBC-TV18.
At 2.45 pm, the Nifty IT index was down over 5% or 1,800 points at 33,298.
Catch all stock market live updates here.
The weakness followed a steep overnight sell-off in US-listed technology stocks and IT services ADRs after fresh advances in enterprise AI tools, including Google-owned Anthropic's new AI plug-ins that can automate tasks across fuctions, reignited fears that automation could threaten existing software business models.
Tata Consultancy Services and Wipro hit fresh 52-week lows, while others like Persistent, Coforge, LTIMindtree, MphasiS, and Oracle Finserv were all down 5-6%.
The Nifty IT Index is down over 11.5% so far this year. Over the last five years, TCS has delivered a negative 12% return, while Wipro has remained largely flat. With the latest decline, TCS' market capitalisation has slipped back below ₹10 lakh crore for the first time since December 2020.
Ed Yardeni, President of Yardi Research. said “It was kind of like Game of Thrones… and suddenly, with AI, they're [tech companies] all competing with each other.”
He warned that heavy spending on AI infrastructure is adding uncertainty for returns in the software and large-cap technology space.
Why AI may pose a deeper disruption than past tech cycles
Analysts
at Citi believe the current cycle may be structurally different from the earlier cloud transition. In a note to investors on February 9, Citi listed the following reasons.
• Incumbency Risk: Indian IT has doubled in size since the Cloud era. It is now the "dominant player" being disrupted, rather than the strong challenger.
• Cloud impacted infrastructure; AI impact is more pervasive.
• New revenue streams are small and exploratory and will not be able to offset the loss in traditional work.
HSBC also said productivity gains from AI may heighten pricing pressure, though it does not expect productivity improvements to exceed 15–20%. While they acknowledges that risks may be more credible than past tech cycles, they still expect low-teens returns from IT in 2026.
Counter views
Both Anish Shah, Group CEO and Managing Director at Mahindra Group and Venu Lambu, Managing Director and CEO of LTIMindtree, said the concerns over the impact of AI on the industry are 'overblown'.
"The death of the pyramid has been forecast multiple times over the last 30 years, at every inflection point where technologies come in, starting from Y2K, and then call centres, and then we had blockchain coming in. There are various technologies that have disrupted this industry. And the industry has always evolved," Shah said.
He said people-intensive tasks have reduced over time as new technologies improved efficiency, and AI will further enhance productivity while also creating new kinds of work. According to him, companies like Tech Mahindra that adapt quickly will benefit the most, adding that the Indian IT services industry is “in reasonable shape,” though more nimble players are likely to perform better.
Dipan Mehta of Elixir Equities agrees with Shah. He believes the AI-led sell-off in IT may be running ahead of fundamentals given that "it is an industry, which is used to disruption and on the contrary, the kind of billings, the order book position, the new contracts had improved for these companies."
Allspring Global Investment's Prashant Paroda offers a different perspective. He believes investors may be overreacting to the AI threat to IT services sector when the real risk is its muted revenue growth.
"I think it's a little bit overdone, because people are projecting that AI will sort of take over tomorrow, which you know it's probably not going to happen. So from the IT services perspective, the growth still is very muted," the emerging markets portfolio manager said, adding the AI news will come and go, and stocks will react to that.
Should you invest in IT stocks now?
While it is still too early to call the final impact of AI on software services and investors need to be careful about investments in the sector, Mehta said, “I wouldn’t be too overweight or underweight… but they could certainly be on a very, very strong watch list.”
Ashwini Agarwal, Founder and Partner, Demeter Advisor said, “Just stay away would be my sense for the moment.” He added, “When something is getting disrupted, don't stand in the way… stay away, let the chips fall where they may.”
Dinshaw Irani, CEO, Helios Mutual Fund, pointed out that they had called out the AI disruption for the IT services sector in February last year, when there were early signs of it. “I still be still don't believe there's been a reset in that segment," he said.
Dinshaw Irani’s argument is that artificial intelligence strikes at the core of India’s IT model. The industry runs on a wide base of junior employees billing large man-hours at lower costs. If AI automates that layer, billable hours shrink while the cost mix shifts upward. He questions whether higher billing rates can offset that loss, suggesting the reset in fundamentals may not be fully priced in yet.
He also believes both price correction and earnings reset may still be ahead, which means fundamentals could weaken before the sector finds a new equilibrium.
However, not everyone sees the situation as one-sided.
Deven Choksey, Managing Director, Choksey FinServ, believes the recent correction reflects genuine concern, but not necessarily a structural collapse. “I guess it is a justified sell-off to an extent,” he said, referring to the sharp erosion in market capitalisation globally due to fears around agentic artificial intelligence.
At the same time, he feels markets may have reacted a little bit in a hurry. According to him, Indian information technology companies are already adapting their business models. They are “systematically adapting to agentic AI workforce,” shifting from billing pure coding hours to offering more outcome-based solutions, and even creating “agent as a service.”
Choksey believes this shift does not take away the long-term opportunity, and if valuations fall below 20 times price to earnings ratio, some of these stocks, in fact, would become a buy-opportunity.
Where is the Nifty IT index headed?
According to Mitessh Thakkar, President - Retail Research, Bonanza Portfolio, the Nifty IT had some kind of a breakdown and has changed the narration to the negative side.
"In my weekly report I had looked at a target of around 33,700, that is the minimum which the Nifty IT could do. But in a worst-case scenario we could even head slightly lower to about 32,400," he told CNBC-TV18.
At 2.45 pm, the Nifty IT index was down over 5% or 1,800 points at 33,298.
Catch all stock market live updates here.
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