Summary of this article
Nifty IT falls over 10 per cent in seven sessions amid broad-based selling pressure
Investors are worried that AI could disrupt traditional IT services and that demand from the US market may slow down
Analysts are divided. Some are cautious about the sector’s future, while others see selective opportunities in certain IT stocks
IT stocks have been under sustained pressure recently, with the Nifty IT index extending its losing streak to seven consecutive sessions on June 11. Over this period, the index has shed more than 10 per cent, ending the day at 27,821.
The selloff has been led by large-cap IT names. Wipro emerged as the worst performer among the sector heavyweights, tumbling 15.47 per cent in seven sessions. Index heavyweights Tata Consultancy Services (TCS) was down 14.57 per cent, while Infosys lost 12.33 per cent. HCLTech declined 10.75 per cent, whereas Tech Mahindra limited its losses to 6.51 per cent.
Mid-cap IT stocks have been under immense pressure. L&T Infotech fell 11.59 per cent during the period, followed by Persistent Systems, which fell 10.90 per cent. Oracle Financial Services Software slipped 10.44 per cent, while Coforge declined 8.22 per cent. Mphasis held up relatively better, falling 4.60 per cent.
On a year-to-date basis, the Nifty IT index has corrected nearly 27 per cent. The scale of the decline indicates that concerns around the sector go beyond short-term earnings pressures.
Why Are IT Stocks Falling?
At first glance, the selloff looks like a valuation-based correction after a prolonged period during which IT stocks traded at premium valuations. But the recent decline reflects a mix of factors weighing on the sector at the same time.
Concerns Over US Interest Rate Hike
Indian IT companies generate a large share of their revenue from overseas markets, especially the US. Concerns over slower technology spending by global companies, uncertainty around trade policies, geopolitical tensions and fears of weaker economic growth have made investors wary of sectors that depend heavily on discretionary corporate spending.
Vinod Nair, head of research at Geojit Investments, says, "The prospect of a prolonged higher US interest-rate environment continues to weigh on growth-oriented technology stocks, while Accenture's subdued growth guidance has heightened concerns over potential downgrades to FY27 earnings expectations for Indian IT companies."
US inflation rose to a three-year high of 4.2 per cent in May 2026, driven by a spike in energy prices due to the war in West Asia. Higher inflation raises the likelihood of the US Federal Reserve raising interest rates in a bid to curtail spending, which is weighing on Indian IT stocks, as it could lead to weaker technology spending by businesses, particularly in the US, the sector's largest market.
Companies are also becoming more selective about where they spend on technology. While spending on critical projects continues, many businesses are delaying large-scale digital transformation programmes, affecting demand visibility for IT services firms.
FII Selloff Amid High Valuation Concerns
Adding to the pressure, foreign institutional investors (FIIs) have been trimming exposure to technology stocks amid global uncertainty. Data from the National Securities Depository (NSDL) shows that FIIs have sold off IT stocks worth nearly Rs 8,000 since the US-Iran war started in late February.
Even after the recent correction, many IT stocks continue to trade at valuations that are higher than those of several other sectors, making them vulnerable during periods of risk aversion.
Ravi Singh, chief research officer at Master Capital Services, says the weakness stems from a combination of slower global demand, AI-related disruption fears, FII selling and concerns that revenue growth may struggle to keep pace with rising costs and ongoing AI investments.
The AI Threat
The rise of generative artificial intelligence (AI) is increasingly being viewed as a potential disruption to the traditional IT services business model. For decades, Indian IT companies benefited from a labour-intensive outsourcing model, where revenues grew by deploying large teams of engineers for software development, testing, maintenance and implementation work for global clients.
AI is now beginning to change that equation.
New AI models are becoming increasingly capable of performing coding and software engineering tasks that previously required significant human effort. As AI-assisted coding tools become more effective, companies may need fewer engineers and fewer billable hours to complete the same amount of work.
Sumit Pokharna, senior vice president - fundamental research, Kotak Securities, says, "The key concern is that productivity improvements in software engineering are occurring much faster than in non-software domains. This increases the risk of lower effort requirements, reduced billing volumes, and pricing pressure for traditional application development and maintenance contracts."
Investor concerns have grown following rapid advances from companies such as OpenAI, Anthropic and Google. Anthropic's latest AI models, like Claude Fable 5 and Mythos 5, in particular, have attracted attention for their software engineering capabilities, fuelling speculation that AI could eventually automate a larger share of coding work.
This is especially significant because application development and maintenance remain a major revenue source for many Indian IT companies. If enterprises increasingly use AI tools within software development workflows, IT service providers may face pressure on billing volumes and pricing over time.
“Anthropic’s Claude Fable 5 raises the risk of revenue deflation for Indian IT services companies, those with significant exposure to application development & maintenance (ADM) services. Fable 5 & Mythos 5 deliver substantially stronger software engineering capabilities. Anthropic believes AI-generated code quality is now approaching human levels & could surpass it within the next year,” says Pokharna.
Can AI Companies Take Away Business From Indian IT Firms?
Another pertinent question troubling investors is whether AI companies could eventually capture a larger share of the technology spending that traditionally flowed to IT services firms.
Nair says AI companies are increasingly moving beyond developing AI models and are now offering enterprise solutions directly to customers. As a result, Indian IT firms find themselves in a position where they are both collaborating with and competing against AI providers for a share of corporate technology budgets.
Singh believes this shift is already underway. "A significant value transition is occurring," he said, adding that foundational AI model providers and hyperscalers are increasingly targeting enterprise customers directly.
At the same time, the picture is not entirely one-sided. Large organisations still need support to integrate AI into existing systems, manage cybersecurity risks, ensure regulatory compliance and train employees to work with new technologies. These are areas where established IT companies continue to have strong capabilities and long-standing client relationships.
The key question for investors is whether Indian IT firms can adapt quickly enough and expand their role from traditional outsourcing providers to AI-led consulting, integration and transformation partners.
How Are Investors Viewing The Sector?
Investor sentiment has clearly deteriorated. Technology stocks were once considered among the safest ways to gain exposure to global growth. Today, investors are questioning earnings assumptions, margin sustainability and long-term growth rates.
Recent market action suggests investors are demanding a larger risk premium before committing fresh capital to the sector. At the same time, the sharp correction has reduced valuations significantly from their peaks. Several market participants argue that the selloff has already discounted a meaningful portion of the near-term risks.
Singh said the recent de-rating has created opportunities in companies that have demonstrated resilience through strong order books, healthy deal pipelines and proactive AI investments.
The market is increasingly differentiating between firms that are building AI capabilities aggressively and those that risk being disrupted by them.
What Should Investors Do Now?
For investors, the answer may depend on their time horizon. Those expecting a quick rebound could be disappointed if concerns around US growth, enterprise technology spending and AI disruption persist over the next few quarters.
Long-term investors may view the correction differently. Many leading Indian IT companies continue to generate strong cash flows, maintain healthy balance sheets and invest heavily in AI partnerships, platforms and workforce reskilling. Their global scale and decades-long client relationships remain difficult to replicate.
The key will be execution. Companies that successfully reposition themselves as AI implementation and transformation partners could emerge stronger, even if traditional outsourcing growth slows. Investors may therefore need to be selective rather than treating the entire sector as a single bet.
