Major information technology stocks remained under pressure on Tuesday morning. Infosys, TCS and HCLTech led losses in early trade. By 9:35 am, most IT counters traded deep in the red. Consequently, the Nifty IT index fell more than 3%. The sectoral gauge slipped to a two-year low of 30,516.8. This marked its weakest level since November 2023. Moreover, the broader Sensex and Nifty also felt the drag. The sell-off extended an already weak trend this month.
AI Fears Resurface Strongly
Investor anxiety around artificial intelligence disruption has intensified again. Markets fear Artificial Intelligence could reduce demand for routine outsourcing services. Recently, US-based startup Anthropic launched new AI tools. These tools reportedly automate documentation, coding and data processing tasks. Such activities form a large share of Indian IT services. Therefore, investors worry about future revenue visibility. A report by Citrini Research added fresh pressure. It outlined a scenario where contract cancellations may accelerate through 2027.
The note argued that AI coding agent costs could collapse sharply. Consequently, India’s traditional cost advantage may weaken significantly. Indian IT services generate over $200 billion annually. This sector also supports India’s current account surplus. However, if automation reduces manpower needs, growth could slow. Therefore, markets reacted swiftly to these projections.
Broker Downgrades Deepen Concerns
Brokerages have also adopted a cautious stance. Jefferies downgraded several large IT firms. Infosys, HCL Technologies and Mphasis moved to ‘hold.’ Meanwhile, TCS, LTIMindtree and Hexaware received ‘underperform’ ratings. Jefferies also cut earnings estimates by 1–4%. It expects earnings CAGR of 6% over FY26–28.
Additionally, JP Morgan flagged rising concerns about missed growth targets. Analysts believe AI-led efficiency could reshape client spending priorities. Nevertheless, some analysts remain cautiously optimistic. Motilal Oswal suggested CY26 may mark the bottom of the growth cycle. They expect stronger acceleration in FY27 and FY28. However, AI uncertainty may limit near-term valuation recovery.
Global Trade Uncertainty Adds Pressure
Meanwhile, global developments triggered fresh selling. Markets remain tense ahead of President Donald Trump’s State of the Union address. Investors await clarity on trade policy remarks. Recently, the European Union froze a major deal after tariff changes.
Tariffs create uncertainty and delay corporate spending decisions. Consequently, stock markets react nervously to such signals. Indian IT companies derive most revenue from the US and Europe. Therefore, global trade worries directly affect sector sentiment.
Another trigger came from American Depository Receipts. ADRs of Indian IT companies fell sharply overnight. ADRs reflect global investor mood toward these firms. When they decline, domestic markets often follow. As ADRs slipped, traders expected weakness at home. Consequently, selling began at the opening bell.
Sector Underperformance Widens
The Nifty IT index has declined over 19% in CY26. In contrast, the Nifty 50 has fallen nearly 2%. Wipro, Coforge, LTIMindtree, Persistent Systems, Infosys and TCS have dropped more than 20%. On Tuesday, Coforge fell 4.8%. HCL Technologies and Persistent Systems also posted sharp losses. All stocks in the Nifty IT index traded lower. The decline reflected broad-based sector weakness.
Foreign Investment Rotation
Foreign investors have returned to Indian equities recently. However, they prefer domestic growth sectors. Capital goods and financial stocks attract fresh buying. In contrast, IT stocks remain under selling pressure.
According to Dr VK Vijayakumar of Geojit Financial Services, foreign investors bought Indian equities in ten of the last seventeen sessions. However, they largely avoided technology counters. Overseas exposure makes IT vulnerable to global slowdown fears.
Perfect Storm for IT
Together, several factors created a perfect storm. AI disruption concerns, global trade tensions and broker downgrades converged. Weak US markets and ADR declines further intensified pressure. Moreover, reduced discretionary spending visibility added to investor anxiety. Even though companies remain fundamentally stable, markets price future expectations. Currently, those expectations appear uncertain.
For retail investors, the correction reflects sentiment shifts rather than immediate operational distress. However, until clarity emerges on AI impact and global trade direction, volatility may persist. For now, Indian IT finds itself caught between technological transformation and global economic uncertainty.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
