India’s IT heavyweights just got dragged into a brutal reality check: when the world thinks software work is becoming cheaper, faster, and more automated, services-led tech exporters get priced like yesterday’s business model.
By mid-February, investors had already erased about $50 billion from the sector’s market value for the month, as a wave of anxiety around generative AI tools — and what they might do to billable hours — kept pressure on the group.
What happened this week
The selloff intensified into Friday, when the Nifty IT index dropped as much as 5.2% intraday before paring losses to finish about 1.44% lower. On the week, the index was down roughly 8.2%, putting it on track for one of its sharpest weekly declines in years.
The pain wasn’t limited to small names — it hit the pillars:
- TCS fell about 2.1%
- Infosys slipped roughly 1.2%
- HCLTech dropped around 1.4%
The late-session bounce didn’t signal strength. It signaled something else: dip-buying.
The trigger: “Anthropic shock” and the AI confidence collapse
A new tool from AI startup Anthropic (launched last month) helped kick off a broader tech risk-off move — and it poured gasoline on a specific fear that’s been building for years:
If AI can automate routine work and compress delivery timelines, what happens to India’s labor-intensive IT services machine?
Investors aren’t just asking whether AI changes workflows. They’re asking whether AI changes the pricing unit — from hours and teams to outcomes and automation. And if that shift happens faster than expected, revenue growth targets start looking fragile.
Why the market is reacting so violently
This isn’t just “tech volatility.” It’s a credibility test.
The fear on the Street is that clients could:
- reallocate spending (less on traditional services, more on platforms, automation, internal tooling)
- demand lower pricing because AI boosts productivity
- compress project cycles and cut the size of delivery teams
One portfolio manager put it bluntly: the sector hasn’t done the best job communicating how AI becomes an opportunity instead of a threat. That communication gap matters when sentiment is already weak.
But the counterpoint is real: IT services don’t disappear — they mutate
Here’s the part the market often forgets during panic weeks: enterprise tech doesn’t magically run itself.
Even if AI rewrites parts of software delivery, large organizations still need:
- integration across messy legacy systems
- security, compliance, governance
- change management and operations
- customization to business context (where “AI slop” can become expensive fast)
One of the best analogies floating around is that IT services firms are still the plumbers of the tech world: when the pipes change, you still need someone who understands the building.
That doesn’t mean headcount stays the same. It means the value shifts — toward architecture, oversight, domain expertise, and AI-enabled delivery.
Why this selloff doesn’t end with one bounce
This isn’t a one-day headline trade. It’s a multi-quarter narrative shift.
The market will keep punishing the sector until companies prove — with numbers, not slogans — that they can:
- protect pricing and margins
- show credible AI-driven productivity without revenue destruction
- reposition from “people scale” to “platform + productivity scale”
- explain clearly how AI changes offerings (and why clients still pay)
What to watch next
If you want early signals that the fear is peaking (or that it’s justified), watch:
- management commentary on AI-led pricing and deal structures
- large deal wins and whether they’re margin-accretive
- hiring trends (a proxy for demand confidence)
- client budgets in the U.S. and Europe
- guidance language: “efficiency tailwind” vs “demand deflation”
Bottom line
Indian IT isn’t “finished.” But the market is done paying premium valuations for a story that sounds like 2015.
AI is forcing a re-rating because it threatens the simplest assumption behind the industry’s success: more work equals more people equals more revenue.
