Nifty IT Index Tanks 10% in 2 Days on AI Fears, Rate Cut Hopes

Introduction to the Market Turmoil

India's information technology sector faced a severe downturn as the Nifty IT index plunged approximately 10% over just two trading sessions. This sharp correction, which saw the index shed significant value, was driven by a dual onslaught of investor concerns: the potential for structural disruption from generative artificial intelligence (AI) and diminishing optimism for near-term interest rate cuts by the U.S. Federal Reserve. The sell-off was widespread, dragging down industry heavyweights like Tata Consultancy Services (TCS), Infosys, and Wipro to their 52-week lows and erasing substantial investor wealth.

The Scale of the Sell-Off

The intensity of the decline was reflected in the market data. The Nifty IT index fell 10.5% in two days and extended its losses to 12% over a three-day period. From its peak of 38,611.75 on February 3, 2026, the index has tumbled 19% in just eight trading sessions. On Friday, the index was down 5.24% to 31,422.60 in intra-day trade. The carnage resulted in a staggering loss of ₹1.3 lakh crore in combined market capitalization for the Nifty IT index constituents in a single day, highlighting the scale of the investor exodus.

Infosys was among the worst hit, with its stock dipping nearly 8% to a 52-week low of ₹1,281.50, accumulating a 13% loss over two days. Similarly, TCS, Wipro, HCL Technologies, and Tech Mahindra all saw their stock prices fall between 5% and 6%, with cumulative two-day losses ranging from 9% to 11%. Several other companies, including Cyient, Hexaware Technologies, and L&T Technology Services, also touched their respective 52-week lows.

Primary Catalyst: The AI Disruption Narrative

A significant trigger for the sell-off was the growing anxiety surrounding AI's impact on the traditional IT services business model. The recent launch of an AI-enabled enterprise solution by Anthropic intensified concerns that generative AI could disrupt the core revenue streams of Indian IT firms, particularly in application development and maintenance (ADM). According to an analysis by ICICI Securities, the market is grappling with the medium-term revenue resilience of legacy IT services in an AI-led delivery model. The core question is whether enterprise tech spending will require fewer engineers as AI tools become more adept at writing code, fixing bugs, and deploying systems, which could fundamentally alter cost structures and valuation frameworks for the sector.

Secondary Factor: Macroeconomic Headwinds

Compounding the AI fears were macroeconomic signals from the United States. A stronger-than-expected U.S. jobs report dampened market hopes for an imminent interest rate cut by the Federal Reserve. Higher interest rates in the U.S. typically compress the valuations of growth-oriented sectors like technology, which are priced based on future earnings potential. Furthermore, a prolonged high-rate environment could lead to cautious discretionary spending from clients in North America and Europe, which are the primary revenue markets for Indian IT exporters. This macroeconomic uncertainty added significant pressure to already nervous investor sentiment.

Global Market Contagion

The weakness in domestic IT stocks was amplified by a sell-off in their global counterparts. Indian IT American Depositary Receipts (ADRs) listed in the U.S. faced intense pressure, with Infosys ADR declining 10% and Wipro ADR falling 5% in a single session. This sharp reaction in ADRs served as a negative sentiment proxy, triggering a risk-off mood that quickly spilled over into the Indian markets. The broader Nasdaq IT services basket also corrected meaningfully, confirming that the concerns were not isolated to India but were part of a global re-evaluation of the technology services industry.

Key Stock Performance Summary

Expert Commentary and Analysis

Market analysts and industry leaders offered varied perspectives on the situation. Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, suggested that while the sell-off was expected, its timing was uncertain. He advised investors against panic selling, stating that the real impact of the 'Anthropic shock' is yet to be determined. In contrast, some industry insiders, including Cognizant CEO Ravi Kumar, argued that the assumption that new AI tools can seamlessly replace large-scale IT services work is misplaced, highlighting the complexities of enterprise integration. Industry body Nasscom also dismissed the fears as 'misplaced,' suggesting that AI would be a tool for enhancement rather than a replacement.

Conclusion and Forward Outlook

The sharp correction in the Nifty IT index is a clear reflection of investor anxiety at the intersection of technological disruption and macroeconomic uncertainty. The dual pressures of AI's potential to reshape the IT services landscape and the prospect of a 'higher for longer' interest rate environment in the U.S. have forced a significant re-evaluation of the sector's outlook. While the immediate sentiment remains fragile, the path forward will depend on how effectively Indian IT companies can pivot their business models to leverage AI as a growth driver. Investors will be closely watching for stability in global tech markets and clearer signals on enterprise spending trends before confidence returns to the sector.