Indian IT stocks sink to 10-month low as AI disruption fears deepen selloff, analysts see sentiment-led correction
Indian information technology stocks fell sharply on Wednesday, pushing the Nifty IT index to its lowest level in about 10 months, as renewed concerns over artificial intelligence disruption and global tech weakness weighed on sentiment.
In the latest session on February 12, the Nifty IT index dropped around 5% to 33,408.15, a level last seen in April last year, according to exchange data. The decline marked one of the steepest single-session moves for the sector in recent months.
The selloff was broad-based. Coforge fell about 6% to emerge as the top loser on the index, while large-cap names such as Infosys, LTI Mindtree, Wipro and Tata Consultancy Services (TCS) declined by up to 5%. Sector volumes were elevated in several counters, indicating active repositioning by investors.
The fall came even as US January jobs data showed stronger-than-expected payroll growth, highlighting that the trigger was not a single data point but a mix of macro and structural concerns around AI.
Why it matters: IT is a heavyweight sector for Indian markets and exports
The IT sector is one of India’s most globally integrated industries, contributing significantly to services exports, white-collar employment and benchmark index performance. Movements in IT stocks often influence the direction of the Nifty 50 and Sensex because of their weight in the indices.
For foreign investors, Indian IT serves as a proxy for global tech spending and digital transformation trends. A sustained correction can therefore affect portfolio allocations, currency flows and overall market sentiment.
At a macro level, the sector’s health matters for India’s services trade surplus and urban employment. Fears of AI-led disruption raise questions about the future demand for traditional IT services, which have been a key growth driver for two decades.
What we know so far: AI narrative and global cues driving moves
Several factors converged in the recent decline:
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The US jobs report showed payroll growth rising and unemployment easing to 4.3%, suggesting the Federal Reserve may not rush to cut rates.
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However, economists noted that most job gains were concentrated in healthcare and social services, pointing to a tepid broader labour market.
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Christopher Rupkey, chief economist at FWDBONDS, was quoted as saying that the jobs mix does not necessarily guarantee future economic strength.
After the data, US tech stocks weakened. Microsoft fell 2.2% and Alphabet declined 2.4%, while the S&P 500 software index dropped 2.6%. This global tech softness fed into Indian IT sentiment.
Earlier, concerns had already risen after AI firm Anthropic launched a legal-focused AI tool for its Claude chatbot, intensifying debate about whether generative AI could erode demand for traditional coding and consulting services.
According to Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, weak global tech sentiment and rupee depreciation amplified foreign portfolio investor (FPI) outflows from the sector.
What remains unclear: Pace of AI disruption and client spending response
Despite the sharp market reaction, several uncertainties remain.
It is not yet clear how quickly AI adoption will translate into lower headcount or reduced outsourcing budgets. While AI tools can automate coding and testing, large enterprises still rely on human-led system integration, governance and accountability.
It is also uncertain how global clients will rebalance spending. Some may use AI to cut costs, while others may increase digital investments because AI makes projects cheaper and faster.
Another open question is pricing. If AI improves productivity, IT firms may protect margins even if billing models evolve.
Market or sector impact: Large caps and mid-tier firms under pressure
The current correction has affected both large and mid-tier IT firms. Large caps tend to react to global macro signals and foreign flows, while mid-tier firms are more sensitive to deal pipeline expectations.
Technical analysts say the sector’s charts reflect a decisive shift in momentum.
Tushar Badjate, Director at Badjate Stock & Shares, said the Nifty IT index has breached its 200-day moving average and is testing a key support zone between 34,000 and 33,000. He noted that rising US bond yields, valuation compression and cooling AI enthusiasm have weighed on growth stocks globally.
Drumil Vithlani of Bonanza added that heavy volumes on declines indicate rising selling interest, though momentum indicators such as RSI are in oversold territory, which could allow short-term bounces.
Broader context: IT sector has weathered disruptions before
Historically, the Indian IT sector has navigated multiple waves of disruption—Y2K transitions, the global financial crisis, cloud migration and automation. Each phase prompted concerns about job losses or margin pressure, yet the industry adapted by moving up the value chain.
Analysts say the current AI wave could follow a similar pattern. Instead of eliminating demand, it may shift the mix toward higher-value services such as AI integration, data engineering and cybersecurity.
Globally, enterprises still run complex legacy systems that require human oversight. Full automation remains limited in mission-critical environments.
What analysts and officials are saying: Sentiment vs fundamentals
Darshan Rathod, COO at MULTYFI, described the current reaction as “more emotional than rational.” He argued that AI is a productivity tool that can help engineers work faster and improve margins rather than simply replace roles.
He noted that AI cannot take legal or operational responsibility in complex systems, which still require human judgment.
Pranav Koomar, Founder and CEO of PlusCash, said the weakness appears sentiment-driven. He pointed to healthy deal pipelines and long-standing client relationships for Indian IT firms. Companies that clearly articulate AI integration strategies may recover faster, he said.
Both analysts suggested the sector is in a transition phase rather than facing structural decline.
What it means for investors or stakeholders: Volatility likely, selectivity key
For investors, the message is that volatility in IT stocks may persist as markets recalibrate valuations. Growth stocks are particularly sensitive to interest rates and technological narratives.
Key considerations include:
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Clarity on AI strategies by IT firms
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Stability in global tech spending
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Direction of FPI flows
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Currency movements affecting margins
Long-only investors may differentiate between firms investing in AI capabilities and those slower to adapt. Traders, meanwhile, may remain cautious given technical weakness.
What to watch next: Support levels, earnings commentary and global data
Market participants are likely to track:
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Whether the Nifty IT holds the 33,000 support zone
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Management commentary on AI in upcoming earnings calls
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US inflation and rate signals influencing tech valuations
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Trends in global software spending
If AI-driven efficiency translates into higher demand for digital transformation, sentiment could stabilise. Until then, the sector may trade with a risk-off bias.
For now, Indian IT stocks appear caught between long-term structural questions and short-term market psychology—a combination that often produces sharp but not always lasting corrections.
