IT Stocks Crash: AI Fears Wipe ₹2 Lakh Crore from Infosys, TCS

Indian IT stocks experienced a massive sell-off on Wednesday, February 4, 2026, as rising concerns over competition from artificial intelligence rattled investor confidence. The Nifty IT index, a key barometer for the sector, plunged over 7%, marking its position as the day's top losing sectoral index. The sharp decline wiped out approximately ₹2 lakh crore from the market capitalization of India's leading technology firms, dragging the benchmark Sensex and Nifty indices down with it.

The Catalyst: Anthropic's AI Advancement

The immediate trigger for the sector-wide rout was an announcement from US-based AI startup Anthropic. The company unveiled new productivity tools for its Claude AI, including a specialized product aimed at automating corporate legal tasks. This tool can review contracts, manage compliance, and draft legal briefs, functions that are often part of the services offered by IT and business process outsourcing companies. The launch intensified fears that advanced AI could disrupt traditional software and services business models, potentially eroding pricing power and margins for established players.

A Sea of Red on Dalal Street

The investor panic was reflected in the steep fall of major IT stocks. Heavyweights led the decline, with shares of Infosys and LTI Mindtree crashing by more than 8%. Coforge also saw a similar drop of around 8%. Other prominent names were not spared, as Persistent Systems, Mphasis, and Tata Consultancy Services (TCS) each fell by approximately 7%. Tech Mahindra and HCL Technologies plunged around 6%, while Wipro declined by over 4%. The pressure extended beyond core IT services, with Info Edge, parent of Naukri.com, also sliding 6% amid broader concerns about technology's impact on the job market.

Echoes from Wall Street

The sell-off in India was a direct reflection of overnight weakness in global technology markets. On Wall Street, the tech-heavy Nasdaq Composite had dropped 1.43%, erasing nearly $100 billion in market value. Major US tech firms felt the heat, with AI leaders Nvidia and Microsoft falling by nearly 3% each. Other giants like Alphabet and Amazon also slipped ahead of their earnings reports. The sentiment was clear: investors were reassessing the competitive landscape in light of rapidly advancing AI capabilities.

Market Impact and Financial Fallout

The sharp correction erased significant wealth for investors. The Nifty IT index's fall to 35,909.25 was its most severe in recent memory, highlighting the gravity of the situation. The ₹2 lakh crore erosion in market value underscores the heavyweight nature of the IT sector in Indian markets. The broad-based nature of the sell-off, affecting both large-cap and mid-cap companies, indicated that the concerns were sectoral rather than company-specific.

Analyst Commentary and Underlying Concerns

Market analysts were quick to connect the dots between the global tech rout and the crash in Indian IT stocks. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the sell-off in the US would inevitably drag the Indian IT index down, especially given the high valuations in the sector. He stated, "Since valuations continue to be high, there is no fundamental support for a sustained rally." This sentiment was echoed by international brokerages. A recent Jefferies report had already highlighted a reduction in its allocation to the IT sector in its India model portfolio, signaling a cautious stance even before the crash.

The Bigger Picture: A Paradigm Shift

While AI has long been seen as a tool that would benefit IT service providers, the announcement from Anthropic shifted the narrative. The fear is that AI is evolving from a service enabler to a direct competitor, capable of automating complex professional tasks that were once the domain of human-led service firms. This potential for disruption has forced a fundamental re-evaluation of the long-term growth prospects for the IT services industry. Although Anthropic clarified that its tools are meant to assist, not replace, legal professionals, the market reacted to the potential for broader disruption across various professional services.

Conclusion

The sharp fall in Indian IT stocks on February 4 was a clear reaction to a global shift in sentiment regarding artificial intelligence. Triggered by Anthropic's new capabilities, the sell-off highlighted the vulnerability of the traditional IT services model to AI-driven automation. While the immediate financial impact was severe, the event serves as a critical reminder of the evolving technological landscape. The path forward for India's IT giants will depend on their ability to adapt, innovate, and integrate advanced AI into their own service offerings to stay ahead of the competitive curve.