Indian IT stocks come under pressure as AI disruption worries deepen

Contents

Why the latest AI developments are rattling IT investors What we know so far about the market move What remains unclear about the real AI impact on IT services Technical signals show the sector nearing critical zones Some analysts still see a correction rather than a breakdown Broader context shows global tech sentiment also under strain What it means for investors navigating the selloff What to watch next as the sector tests support

Indian information technology stocks extended their decline in the latest session, with the Nifty IT index falling nearly 3% and heading for its worst weekly performance in over four months, as investors reassessed the sector’s outlook amid rapid advances in artificial intelligence.

The sectoral index slipped to around 35,212 on Friday, taking its three-day decline to roughly 9%, according to exchange data. The selloff has made IT the worst-performing sectoral index in the market in the latest session.

The trigger, traders and analysts say, is a shift in sentiment after AI firm Anthropic launched new plug-ins for its Claude Cowork agent that can automate tasks across legal, sales, marketing and data analysis functions — areas where IT services firms have historically derived significant business.

While the immediate market reaction has been sharp, analysts are divided on whether the move signals a structural risk to Indian IT or a near-term sentiment-driven correction.

Why the latest AI developments are rattling IT investors

Anthropic’s new tools have revived a long-running debate over whether generative AI could compress demand for traditional outsourcing and professional services.

Market participants say the concern is not that IT services will disappear, but that:

Automation could reduce billable hours in some service lines
Clients may insource more digital capabilities
Pricing power could come under pressure
Project cycles may become shorter and more outcome-driven

None of these effects are yet visible in company earnings data in a definitive way, but equity markets often move ahead of fundamentals when disruption themes gain traction.

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What we know so far about the market move

Confirmed data points show:

Nifty IT is down about 9% over three sessions
The index has slipped below key short-term moving averages
The sector is underperforming the broader market this week

Major heavyweights such as Infosys, Tata Consultancy Services and HCL Tech have seen technical breakdowns, according to market technicians. Volumes have indicated persistent selling pressure rather than thin, illiquid moves.

According to provisional exchange data, broader market volatility has not spiked dramatically alongside the IT decline, suggesting a sector-specific move rather than systemic risk-off behaviour.

What remains unclear about the real AI impact on IT services

Despite the sharp price reaction, several uncertainties remain:

The extent to which AI tools will replace versus augment IT services
How quickly enterprise clients will change spending patterns
Whether new AI-related demand could offset legacy pressure

There is also limited public data so far showing a direct hit to order books or deal pipelines of large Indian IT firms due to AI substitution.

As a result, analysts caution that the current move is based more on forward-looking risk assessment than on confirmed earnings deterioration.

Technical signals show the sector nearing critical zones

Market technicians say the sector is approaching important support areas but has not yet shown clear reversal signals.

Siddharth Maurya, Founder and Managing Director at Vibhavangal Anukulakara, said the index’s failure to hold key moving averages has pushed it toward oversold territory, increasing volatility.

“At this juncture, the sectoral IT stocks must fight to hold on to the support zones, where the market may pick up gradually,” he said.

Tushar Badjate, Director at Badjate Stock & Shares, noted that Nifty IT has slipped below its 200-day moving average, indicating a bearish shift.

He identified 34,000–33,000 as a key demand zone, supported by longer-term moving averages and previous swing lows.

“Until the index decisively reclaims 37,500–38,000, rallies should be viewed as sell-on-rise opportunities,” Badjate said.

Some analysts still see a correction rather than a breakdown

Not all market participants see the move as the start of a structural decline.

Darshan Rathod, COO at MULTYFI, said the correction follows a strong prior run that left valuations stretched in both large- and mid-cap IT names.

“RSI levels have cooled into neutral zones, which usually signals consolidation rather than panic selling. This suggests momentum has weakened, but the broader trend is still intact,” Rathod said.

This view frames the selloff as valuation adjustment combined with global tech caution rather than pure AI fear.

Broader context shows global tech sentiment also under strain

Indian IT stocks are not moving in isolation. Global technology shares have seen bouts of volatility as investors recalibrate expectations around AI winners and losers.

Within emerging markets, technology-heavy indices have also faced selective pressure when AI-related headlines reshape narratives around productivity and margins.

However, India’s IT sector remains a major export earner and a core part of global digital transformation spending, factors that longer-term investors still track closely.

What it means for investors navigating the selloff

For investors, the current environment presents a trade-off between valuation comfort and uncertainty around disruption.

Key considerations include:

Short-term momentum remains weak
Technical structure is fragile below 200-DMA
Long-term demand for digital services has not disappeared
AI could create as well as destroy opportunities

Drumil Vithlani, Technical Analyst at Bonanza, said momentum remains negative and advised caution.

“Investors are advised to follow a sell-on-rise strategy and avoid aggressive long positions until the sector shows clear signs of reversal above key resistance levels,” he said.