Nifty IT Index slides 25% in 2026 amid AI, tariffs

What is driving the latest sell-off in Indian IT

Indian information technology stocks came under renewed pressure as investors weighed two overlapping risks: rising uncertainty in global trade and the speed of change triggered by artificial intelligence tools. The Nifty IT index, which tracks the top 10 listed software services companies on Dalal Street, has been described as the worst-performing sector, down 25% in 2026. Separate reports also flagged that the index was ending February down about 20%, underlining how persistent the decline has been.

The market move has been sharp enough to bring back comparisons with past crisis periods, even though the current fall has not been linked to a single shock event. The concern in this cycle is more structural: whether AI could steadily reduce demand for routine services that have historically powered India’s outsourcing-led IT model.

Tuesday’s trading: heavyweights slide, index drops over 5%

Selling pressure built through the trading session, with large-cap names leading declines. Infosys, TCS and HCLTech were down as much as 6% during Tuesday’s session, and the sell-off intensified into the afternoon. By early afternoon trade, heavyweights including Infosys, TCS, Tech Mahindra and HCLTech were down up to 7%.

The Nifty IT index itself plunged over 5% during the move, dragging on the Sensex and Nifty. Market participants linked the pressure to a mix of overseas cues, weak sentiment after ADR declines, and rising anxiety that AI tools can automate tasks that have traditionally been executed through offshore teams.

Global uncertainty returns: tariffs and policy cues in focus

One of the immediate triggers highlighted was global uncertainty ahead of President Donald Trump’s State of the Union address, with investors watching closely for comments on trade. The backdrop included the European Union freezing a major deal with the United States after tariff changes.

For IT services firms dependent on discretionary tech spending in the US and Europe, a volatile trade environment can become a second-order headwind. When tariffs rise or policy signals turn unpredictable, companies often delay decision-making and new project commitments, and equity markets typically price that hesitation quickly.

AI disruption fear intensifies after new automation tools

A second, more persistent driver has been the fear that AI tools could reduce demand for routine IT and back-office work. Anthropic’s launch of workplace productivity and automation tools, including a wave of new plugins targeting domain-specific tasks, was repeatedly cited as a catalyst for the latest risk-off move.

Reports referenced by market coverage said such tools can handle work such as routine documentation, code generation and data processing. Those tasks overlap with activities that form a large share of traditional outsourcing contracts, making the market sensitive to any sign that adoption is accelerating.

ADR cues and global tech weakness spill into India

Another channel through which the pressure transmitted was the overnight move in American Depository Receipts (ADRs) of Indian IT companies. When ADRs fall, domestic traders often interpret it as a signal of global investor sentiment and price the weakness into the next session.

The sell-off also took place alongside a broader global rout linked to automation risk. One report cited a $185 billion decline across software, financial services and asset management stocks on Tuesday, showing how quickly automation concerns moved across sectors and geographies.

Market-cap erosion: ₹1.51 trillion wiped in a week

Weekly losses have been significant. Indian IT stocks recorded their worst weekly performance in four months, with the Nifty IT index down 6.4% over the week and down 1.5% on Friday. That weekly slide erased about ₹1.51 trillion in market capitalisation from IT stocks, and all constituents of the index ended lower on Friday.

Company-level moves were also pronounced. Over the week, Infosys fell 8.2%, the steepest decline among index peers, followed by Tech Mahindra down 7.1%.

Biggest single-day market-cap hits among top IT firms

A separate tally said India’s top IT firms lost over Rs 2 lakh crore in market capitalisation amid AI concerns, with the anxiety intensifying after Anthropic’s tool launch. It also provided company-wise figures for market-cap erosion.

TCS, India’s largest software exporter, saw market value erode by nearly Rs 70,481 crore, the biggest loss among domestic IT firms. Infosys followed, shedding over Rs 54,000 crore, while HCL Technologies lost about Rs 26,800 crore. Tech Mahindra and Wipro each saw m-cap erosion of Rs 10,500 crore on February 4.

Key numbers at a glance

How brokerages and strategists are reading the trend

Emkay described its stance as “an opportunistic call” while flagging “lack of structural growth in the sector” and projected long-term sector growth remaining sub-5%. Another view argued that the weakness predates AI anxiety, pointing to earnings growth remaining in single digits or only barely touching double-digits over 3, 5 and 10 years, alongside commoditisation, pricing pressure and sluggish demand from key Western markets.

On valuations, one assessment said “the valuation discount exists for a reason” and argued risk-reward may remain unfavourable even on a 4-5 year horizon until companies show concrete reinvention strategies. JM linked the sector’s historical premium to domestic fund flows, INR depreciation benefits, and limited investment alternatives for retail investors, while warning those supports may be weakening.

Where foreign flows and sector rotation are heading

Market commentary also flagged a divergence in foreign investor behaviour. Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said foreign investors were buyers in ten of the last seventeen sessions, signalling a return to Indian equities. But the same commentary said those flows were not moving into IT, instead favouring capital goods and financials linked to domestic growth.

The implication for IT is that, as long as overseas client spending remains slow and visibility stays limited, the sector may struggle to attract incremental risk capital even when the broader market tone improves.

What it means for investors and the IT operating model

The sell-off has put a spotlight on how quickly sentiment can shift when automation risk converges with macro uncertainty. Even where companies remain stable and profitable, equity prices tend to move on expectations about medium-term demand, deal conversion and pricing.

The coverage also noted a brief Budget rally earlier in the week linked to tax incentives for data centres, but that sentiment reversed as headwinds resurfaced. Alongside AI disruption worries, a sudden gain in the rupee was cited as an immediate blow to earnings expectations for exporters billing in dollars.

Conclusion

Indian IT stocks have fallen amid a mix of tariff-linked uncertainty, weak global demand signals, and sharper fears that new AI automation tools could compress traditional outsourcing work. With the Nifty IT index sharply lower in 2026 and large market-cap losses recorded across bellwethers, the next market cue will likely come from client spending commentary, deal momentum, and how firms position AI-led services against legacy revenue pressure.