Indian technology stocks witnessed a sharp sell-off on Thursday, erasing over ₹1.3 lakh crore in market capitalisation as investors reacted to growing concerns around artificial intelligence disruption and persistent global macro uncertainty.
The Nifty IT index declined more than 5%, dragging it close to its lowest level in nearly ten months. The 10-stock index emerged as the worst-performing sector of the day and has remained the weakest segment in recent years, falling 12.6% in 2025 and another 12.2% so far in 2026.
Heavyweights including Tata Consultancy Services (TCS), Infosys, and Tech Mahindra slipped nearly 6% each, making them the biggest laggards on the Sensex. Broader market indices also felt the pressure, with the BSE MidCap Select Index falling 0.48% and the SmallCap Select Index slipping 0.28%. Sectorally, the Focused IT index dropped 5.40%, followed closely by the broader IT index, which declined 5.29%.
AI Shock Triggers Panic Selling
The downturn was largely triggered by developments in the artificial intelligence space. US-based AI company Anthropic recently introduced “Claude Cowork,” a tool reportedly capable of handling complex tasks such as legal contract reviews and compliance checks—functions traditionally outsourced to IT service providers.
Global brokerage Jefferies described the development as a potential “SaaSpocalypse,” highlighting fears that AI may replace certain IT services rather than complement them. Analysts warned that revenue streams in areas like software maintenance, testing, and legal outsourcing could face significant disruption.
Market experts suggest that as AI adoption accelerates, some IT firms could potentially lose up to 40% of revenue in specific service segments that are vulnerable to automation.
Dr. VK Vijayakumar of Geojit Investments noted that the technology sector, already under pressure, may struggle to rebound in the near term due to the AI overhang.
Fed Policy Adds to Pressure
Further weighing on sentiment were recent US labour market figures, which showed the addition of 130,000 jobs and an unemployment rate of 4.3%. Strong employment data reduces the likelihood of an imminent interest rate cut by the US Federal Reserve—a development generally viewed as negative for growth-oriented technology stocks.
Thomas Shipp from LPL Financial pointed out that the core fear surrounding AI lies in heightened competition and pricing pressure, potentially weakening the competitive advantages that IT companies have traditionally enjoyed.
Meanwhile, Motilal Oswal highlighted that legacy software services and testing operations may gradually lose relevance as AI adoption increases. However, the brokerage suggested that partnerships and AI-focused collaborations over the next three to six months could open new service opportunities, possibly leading to fresh AI-driven deal wins by mid-2026.
Sector at a Crossroads
With AI now entering areas such as legal services and customer support—segments previously considered resilient—the traditional IT outsourcing model is facing renewed scrutiny.
Investors are closely watching whether major Indian IT firms can pivot quickly toward AI-enabled services and build new revenue streams, or whether structural disruption will continue to weigh on valuations in the coming quarters.
Originally published on 24×7-news.com.
