Indian IT Stocks Plunge 7% as AI Fears Wipe ₹2 Lakh Crore

Introduction: A Sector-Wide Shock

Indian Information Technology (IT) stocks witnessed a dramatic sell-off on February 4, 2026, as rising concerns over disruption from artificial intelligence (AI) triggered a wave of panic selling. The Nifty IT index, a barometer for the sector's health, plunged more than 7% in intraday trade, its worst single-day performance in years. The sharp correction wiped out approximately ₹2 lakh crore in market capitalization from India's leading IT companies, reflecting deep-seated investor anxiety about the future of the traditional IT services model.

The sell-off was not isolated to India but was a direct consequence of a global tech rout that began on Wall Street. The primary trigger was the launch of advanced workflow automation tools by US-based AI startup Anthropic, which intensified fears that AI could soon replace, rather than just assist, core functions provided by the IT industry.

The Global Trigger: Anthropic's AI Advancement

The catalyst for the market turmoil was Anthropic's announcement of new plugins for its Claude Cowork AI agent. These tools are designed to automate complex, end-to-end business processes across several professional domains, including legal document review, sales analysis, compliance monitoring, and marketing workflows. This development moved beyond simple AI assistance, demonstrating capabilities that directly compete with services that have long been the bread and butter of the IT outsourcing industry.

Investors globally interpreted this as a sign of intensifying competition. The fear is that enterprises might opt for integrated AI solutions over traditional software-as-a-service (SaaS) subscriptions and large outsourcing contracts. This sentiment led to a sharp decline in US tech stocks. The tech-heavy Nasdaq Composite fell 1.43%, with software giants like Salesforce and Adobe dropping around 7% each. AI bellwethers Nvidia and Microsoft also slid by nearly 3%, setting a negative precedent for the Indian market.

Carnage on Dalal Street: Nifty IT Leads the Decline

The shockwaves from Wall Street hit the Indian markets hard at the opening bell. The Nifty IT index became the top losing sectoral index, falling to an intraday low of 35,809.50. The selling pressure was broad-based, affecting all major IT counters regardless of their size or specific business focus. This indicated that the sell-off was driven by a thematic, sector-wide concern rather than company-specific issues.

The financial impact was substantial, with nearly ₹2 lakh crore of investor wealth erased in a single session. The decline underscored the sector's sensitivity to global technology trends and investor sentiment, particularly from North America, which accounts for a significant portion of revenue for Indian IT firms.

Performance of Major IT Stocks

The sell-off was led by frontline IT stocks, which experienced some of their steepest single-day falls. The uniform decline across the board highlighted the systemic nature of the market's concerns.

The pressure also extended to related tech companies. Info Edge, the parent of job portal Naukri.com, fell around 6%, signaling worries about potential disruption in the white-collar job market due to AI-led automation.

Analysis: Structural Threat or Knee-Jerk Reaction?

Analysts are divided on whether the sell-off represents a fundamental, long-term threat or a short-term overreaction. The core of the debate centers on the viability of the Indian IT sector's labor-intensive business model in an era of advanced AI.

One perspective, articulated by strategists like VK Vijayakumar of Geojit Investments, points to high valuations in the sector, which left no room for negative news. With valuations already stretched, the AI news provided a trigger for a much-needed correction.

Others view this as a potential structural disruption. The fear is that AI's ability to automate complex tasks could compress billable hours and shrink margins, fundamentally altering the economics of the IT services industry. International brokerage Jefferies labeled the event a "SaaSpocalypse," suggesting a shift in sentiment from viewing AI as a helpful tool to seeing it as a direct replacement for existing software and services.

However, some experts believe the market is overestimating the immediate threat. Analysts from Kotak Securities described the crash as a "knee-jerk reaction," arguing that the customisation and service integration provided by Indian IT firms are not easily replaceable by generic AI models. They suggest that while AI will disrupt pricing models, it will also create new opportunities for companies that successfully adapt.

The Path Forward for Indian IT

The incident serves as a critical inflection point for the Indian IT industry. For decades, its growth was built on a foundation of labor arbitrage and process efficiency. The rise of generative AI challenges this model directly. To remain relevant, companies must transition from being service providers to becoming strategic partners that leverage AI to drive business transformation for their clients.

This involves significant investment in building proprietary AI platforms, reskilling the workforce, and shifting business models from effort-based billing to outcome-based pricing. The companies that successfully navigate this transition are likely to emerge stronger, capturing value higher up the technology stack. The industry has a history of adapting to technological shifts, from the Y2K bug to the rise of cloud computing, and this will be its next major test.

Conclusion

The sharp correction in Indian IT stocks on February 4 was a clear market verdict on the disruptive potential of artificial intelligence. It was a response to a tangible technological advancement that threatens to upend established business models. While the immediate financial impact was severe, the long-term outlook for the sector now depends entirely on its ability to innovate and adapt. The sell-off is a stark reminder that in the technology landscape, relevance is not permanent, and the only constant is change.