IT Stocks Plunge: AI Fears Wipe ₹5 Lakh Crore From Nifty IT

A Sector in Turmoil

The Indian information technology sector is grappling with a severe downturn, as a wave of selling pressure has erased significant investor wealth. In just five sessions, the Nifty IT index plunged by over 3,000 points, a staggering 9.13% decline. This sell-off is part of a larger trend that has seen the index crash by 20.67% in 2026, reflecting deep-seated concerns about the industry's future. The primary catalysts for this turmoil are twofold: the rapid advancements in artificial intelligence threatening traditional business models and the looming uncertainty of potential US tariffs.

The AI Shockwave

The immediate trigger for the latest rout was a blog post from the leading AI research firm, Anthropic. The company revealed that its 'Claude Code' tool could effectively modernize software written in COBOL, a legacy programming language that underpins critical transaction systems in banking, finance, and government. This development sent shockwaves through the market, as it suggested that AI might not just assist but could potentially replace large swathes of the work currently handled by Indian IT service giants. This fear was palpable on the trading floor, with shares of industry leaders like Wipro, Infosys, and Tata Consultancy Services (TCS) tumbling to their 52-week lows.

Analyst Concerns and Research Notes

Adding to the negative sentiment was a research note from Citrini Research titled 'The 2028 Global Intelligence Crisis'. The report painted a grim picture, forecasting an acceleration in contract cancellations for major players like TCS, Infosys, and Wipro through 2027. This amplified investor anxiety, suggesting that the AI threat was not a distant possibility but an impending reality that could structurally alter the industry's revenue streams. The market reaction was swift and brutal, with the Nifty IT index falling 1,675 points (5.3%) to a new 52-week low of 29,875 in a single day's trading.

Brokerage Downgrades Intensify Selling

The sell-off was further intensified by a series of downgrades from global brokerage firm Jefferies. Citing significant risks posed by AI, Jefferies argued that the industry needs a fundamental shift in its operating model. The brokerage believes AI will pivot the IT business mix towards consulting and implementation, shrinking the lucrative managed services segment that has long been the bread and butter of Indian IT firms. Consequently, Jefferies downgraded six prominent Indian IT stocks, slashing their target prices and signaling a loss of confidence in their near-term prospects.

A Fleeting Relief Rally

Amid the carnage, there was a brief respite. The Nifty IT index saw a relief rally, surging 665 points to 30,719 in a subsequent session, driven by value buying and positive global cues. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that Foreign Institutional Investors (FIIs) turning buyers in February after a prolonged period of selling contributed to the recovery. He also suggested that news of potential partnerships between AI firms like Anthropic and Indian IT companies indicated opportunities for collaboration, not just competition. However, many analysts viewed this as a temporary bounce in a larger downtrend.

The Technical Outlook: Caution Prevails

Technical analysts remain cautious, advising investors to adopt a 'sell on rise' strategy rather than 'buy on dips'. Sachin Gupta, VP of Research at Choice Broking, highlighted that the index's inability to sustain short-term pullbacks points to further downside, with key support levels at 29,300 and 28,700. He believes a meaningful recovery is unlikely without a strong positive trigger from global markets, particularly stability in the Nasdaq.

Anand James, Chief Market Strategist at Geojit Investments, echoed this sentiment, pointing to technical studies that suggest major support levels at 28,800 and 27,200 in the event of a further collapse. The consensus among experts is that the path ahead is fraught with uncertainty, and any recovery is likely to face significant selling pressure at higher levels.

A Structural Reset for Indian IT?

The core question facing investors is whether this is a panic-driven correction or the beginning of a structural reset for the IT services industry. Unlike past technological shifts like the Y2K bug or the move to the cloud, where Indian IT firms were disruptors, they are now the large incumbents at risk of being disrupted. The pervasive nature of AI means its impact could be far broader and deeper than previous technological waves. With the Nifty IT index erasing nearly ₹5 lakh crore in market capitalization in February alone, the stakes have never been higher.

Conclusion: Navigating an Uncertain Future

The recent sell-off has laid bare the vulnerabilities of the Indian IT sector in the age of artificial intelligence. While a brief relief rally offered some hope, the overarching sentiment remains one of caution. The combination of AI disruption fears, critical research notes, and widespread brokerage downgrades has created a challenging environment. The industry's ability to adapt, innovate, and collaborate with new AI technologies will be critical in determining its trajectory. For now, investors and market watchers will be closely monitoring global tech trends and company-specific strategies for signs of a sustainable recovery.