IT index at 10-month low on AI disruption fears: What's next for the battered IT stocks? Here's what analysts say

IT index at 10-month low on AI disruption fears: What's next for the battered IT stocks? Here's what analysts say

• Indian IT stocks dropped, Nifty IT index down 5.5%, lowest since April 2025.
• AI disruption fears and weak tech sentiment cause sharp IT share declines
• Analysts: Fall is sentiment-driven, not fundamental; volatility may continue

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The shares of Indian IT companies plunged in trade on February 12 amid fresh AI worries after better-than-expected January jobs report failed to boost investor sentiment. Analysts have stated that the decline seems to me more sentiment-driven than fundamentals, and highlighted what lies ahead for the IT stocks.

The sharp fall in the share prices pushed the Nifty IT index down 5.5 percent to close at 33,160.20, the lowest level seen by the stock since April 17 last year.

After falling around 13 percent in 2025, the index has declined about 13 percent so far in 2026, due to intensifying fears about artificial intelligence-driven disruption that could drag the earnings of software services companies.

Coforge shares plunged 7 percent, while Tech Mahindra and OFSS shares tumbled more than 6 percent each. Heavyweights Infosys, LTI Mindtree, TCS and HCL Tech shares fell more than 5 percent each, while Mphasis, Persistent Systems and Wipro fell nearly 5 percent each.

Why are IT stocks falling today?

US job growth unexpectedly increased in January and the unemployment rate fell to 4.3 percent. These signs of labor market stability could give the Federal Reserve room to keep interest rates unchanged for some time while policymakers monitor inflation.

However, the sharp increase in payrolls was seen in the health sector. According to economists quoted by Reuters, job openings and other indicators pointed to a tepid labor market, adding that job growth remained concentrated in the healthcare and social services industries, which accounted for nearly all the rise in employment.

"The only jobs being filled in January are in health care and social assistance, along with some nonresidential specialty trade contractors probably related to AI facilities, all of which do not guarantee the economy's future success," the report quoted Christopher Rupkey, chief economist at FWDBONDS, as saying. "If you are looking for a job ... you are unlikely to find anything to apply for in today's report,” he added.

After the release of the report, Wall Street’s tech giants plunged. Software giant Microsoft plunged 2.2 percent and was the biggest loser on the S&P 500, followed by Alphabet which was down 2.4 percent. The S&P 500 software index dropped 2.6 percent, while the overall markets ended flat.

Earlier last week, the IT stocks had seen significant decline amid concerns that artificial intelligence can intensify competition after Anthropic's launch of a legal AI tool. Investors remained concerned that AI was creating more competition for software makers, after Anthropic’s launch of a legal tool for its Claude AI chatbot.

Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, said that the weak sentiment was amplified by global tech sector weakness and rupee depreciation, exacerbating FPI outflows.

What lies ahead?

The correction in IT stocks shows that the market is worried as many investors believe AI is now ready to replace engineers, especially in India’s IT services sector, said Darshan Rathod, COO, MULTYFI. “In my view, this reaction is more emotional than rational,” he added.

Pranav Koomar, Founder and CEO of PlusCash, also said that the sharp weakness seen in the IT stocks today is more of a sentiment correction rather than fundamental weakness. The fears of advanced AI platforms potentially leading to a compression of traditional services revenue models have seen widespread selling, especially in the large caps, he said.

“Yes, AI tools today can write code, fix bugs, and deploy systems faster than ever before. Naturally, investors are questioning whether companies will need fewer engineers in the future. If manpower reduces, cost structures change. And when cost structures change, stock valuations react. But we must separate fear from facts,” said Rathod.

According to him, AI is extremely powerful but mainly as a productivity tool. It helps engineers work faster and more efficiently, as it reduces repetitive tasks. For IT firms, this can improve margins, according to him.

The analyst believes that AI cannot take responsibility. Large global corporations operate on complex, old, and highly customized systems. These systems require human judgment, business understanding, and accountability, and an algorithm cannot be held legally responsible if something fails, he said.

“From my perspective, this is not the end of the IT services story. It is a transition phase. There is also an important economic angle. When something becomes cheaper and more efficient, demand usually increases. If AI makes software development faster and more affordable, more companies across sectors may invest in digital transformation. That could actually expand the total opportunity size for IT firms,” Rathod said, explaining that the real change now is not about replacement, but adaptation as engineers who learn to work with AI will remain valuable, while those who ignore may struggle.

Koomar said that although new-age innovative applications will change the traditional approach to AI, Indian IT companies have healthy deal pipelines and established relationships with global clients. “For the short term, the stocks may face some more volatility as markets recalibrate pricing, but companies that are clear with their AI integration and digital transformation services are more likely to bounce back and drive the next leg of growth,” he said.

Technical view on Nifty IT:

The Nifty IT index remains under sustained pressure following its decisive breach of the 200-DMA, with the index now trading near 33,600 and testing a critical support cluster in the 34,000–33,000 zone. The decline reflects not just technical weakness but also a broader reset in global tech sentiment, said Tushar Badjate, Director of Badjate Stock & Shares.

“Rising US bond yields, valuation compression across growth stocks, and a cooling of AI-driven exuberance have weighed on IT counters. While the medium-term structure remains bearish below 37,500 and rallies are likely to face supply, the index is approaching a tactical inflection point,” the analyst said.

He added that fresh short positions at current levels may offer limited risk-reward unless 33,000 breaks decisively, which could open further downside toward 32,000. Conversely, any pullback toward 35,500–36,500 may continue to be viewed as a sell-on-rise opportunity unless the index reclaims the 37,500–38,000 resistance band.

"The IT sector is witnessing short-term pressure, with the Nifty IT index breaking below key trendline support and slipping under the 36,000 mark. Heavy volumes on recent declines indicate rising selling interest," said Drumil Vithlani, Technical Analyst at Bonanza.

He added that key stocks such as Wipro and Tech Mahindra are trading below important support levels, reflecting weak momentum. "The RSI across the sector is in oversold territory, suggesting the possibility of a technical bounce; however, the broader trend remains negative. Any recovery towards resistance zones is likely to face selling pressure. In the near term, a cautious approach is advised, with a preference for a sell-on-rise strategy until the index regains strength above critical resistance levels," he said.

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