Nifty IT hits 2-year low; Tech stocks slide up to 5% on renewed AI fears

The sell-off in India’s technology stocks extended on Tuesday, with the sectoral gauge slipping to a two-year low as renewed concerns around artificial intelligence (AI) weighed on sentiment. 

This time around, the selling came after a report by Citrini Research outlined a scenario where Indian tech majors may see contract cancellations accelerating through 2027 as the marginal cost of AI coding agent collapses.  

The report highlighted that India's IT services sector would see over $200 billion annually, the single largest contributor to the country's current account surplus and the offset that financed its goods trade deficit. The entire model was built on one value proposition: Indian developers cost a fraction of their American counterparts, the report said.  

However, the marginal cost of an AI coding agent would collapse, essentially, the cost of electricity. Tata Consultancy Services, Infosys and Wipro could see contract cancellations accelerate through 2027, the note said.  

This comes a day after Jefferies downgraded Indian IT companies Infosys, HCL Technologies and Mphasis to ‘hold’; LTIMindtree, TCS and Hexaware to ‘underperform’, citing AI-related concerns. The global research and broking house has cut its earnings estimates by 1-4 per cent across IT firms and expects 6 per cent earnings CAGR over FY26-28.  READ | One Mobikwik Systems share price surges 13% on BSE broking approval

IT stocks underperform

All stocks in the Nifty IT Index declined, with the index falling as much as 3.28 per cent on Tuesday. Coforge (down 4.8 per cent), HCL Technologies (4.4 per cent) and Persistent Systems (down 4.5 per cent) were the top losers. The Nifty IT index hit a two-year low of 30,516.8, the lowest since November 2023.  

The Nifty IT index has lost over 19 per cent in CY26 as compared to a nearly 2 per cent dip in the Nifty 50 index during this period. Wipro, Coforge, LTIMindtree, Persistent Systems, Infosys and TCS have been the top losers that slipped over 20 per cent. 

The correction has been driven by mounting investor concerns about the potential impact of AI on the sector’s growth outlook, with the launch of a new AI tool by startup Anthropic further clouding sentiment. A recent JP Morgan note said a section of the market is increasingly concerned that Indian IT firms could miss growth targets as AI-led efficiencies prompt clients to reallocate spending. 

Analysts at Motilal Oswal, in an earlier report, said CY26 is likely to mark the bottom of the current growth cycle for the IT sector, paving the way for a more meaningful acceleration in the second half of FY27 and in FY28 as AI services move into scaled deployment.  

They noted that there is limited evidence of further earnings cuts and believe a cyclical recovery in core businesses is already underway. However, concerns around terminal value and the disruptive impact of AI could restrict any near-term re-rating of valuations.  ========== 

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