IT stocks fall up to 8%: How big a threat is Anthropic's AI tool for Indian IT firms? Here's what analysts say

IT stocks

• Indian IT stocks plunged over 8 percent after Anthropic launched a legal AI tool
• Analysts warn of AI-driven disruption but see long-term resilience for IT firms
• AI adoption may shift IT billing from effort-based to outcome-based models

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The shares of Indian IT companies crashed on February 4, after Anthropic's launch of a legal AI tool retriggered concerns around rising competition. Analysts have cautioned investors of a possible structural disruption, but highlighted the silver lining behind the AI threat.

The Indian IT companies are accompanying global peers, with Wall Street closing in the deep red earlier yesterday. The sharp fall in the share prices pushed the Nifty IT index down more than 7 percent to hit an intraday low of 35,809.50 on Wednesday. The index then pared some losses to close at 36,345.65.

Heavyweight stocks like Infosys, Tech Mahindra, LTI Mindtree, Tata Consultancy Services (TCS) and others fell up to 8 percent during the day.

The sharp selloff erased Rs 2 lakh crore from the total market capitalisation of India's top IT stocks.

"The rally fuelled by the US-India trade deal will face hurdles to sustain. The IT selloff in the US yesterday will drag the Indian IT index, too, constraining the rally in the Indian market. Since valuations continue to be high there is no fundamental support for a sustained rally," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

Why are IT stocks plunging today?

Wall Street ended yesterday's session sharply lower as 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.

AI developer Anthropic launched plug-ins for its Claude Cowork agent last week that can automate tasks across legal, sales, marketing and data analysis. The move has triggered worries of an impending AI-fueled disruption of the data and professional services industry, which were once seen as major beneficiaries of the AI era, according to traders and analysts.

“Anthropic launched new capabilities for its Cowork to the legal space, heightening competition,” Morgan Stanley analysts including Toni Kaplan wrote in a note on Thomson Reuters, as reported by Bloomberg. “We view this as a sign of intensifying competition, and thus a potential negative," they said.

What lies ahead?

The sharp correction in the Nifty IT index needs to be viewed through the lens of structural disruption rather than just cyclical weakness, said Bhavik Joshi, Business Head, INVasset PMS. “Recent commentary from global enterprise technology leaders highlights a shift that markets are still in the process of digesting: AI is no longer augmenting services, it is beginning to replace large portions of traditional, labor-intensive workflows,” he said.

“The significance of platforms now deploying AI-driven systems capable of executing complex SAP migrations and enterprise transformations in weeks—work that previously required years of human-led effort—cannot be overstated. This is not incremental automation; it represents a fundamental compression of time, cost, and manpower across core enterprise processes,” the analyst explained.

This can create near-term anxiety for service-heavy IT models built on long execution cycles and linear headcount growth, Joshi said.

As Indian enterprises integrate Claude for critical coding workflows, dependency on large vendor teams may decline, squeezing billable hours and margins, said Systematix Group analyst Ambrish Shah. Anthropic's advanced AI systems also threaten entry‑level talent pool at Indian IT firms by replacing routine development and testing tasks, he added.

Is there a silver lining to the AI threat?

Joshi explained that technology adoption accelerates during periods of macro uncertainty. “When margins tighten and execution risk rises, enterprises gravitate toward tools that deliver speed, predictability, and scalability. AI-led enterprise platforms thrive precisely in these environments. What equity markets are currently pricing is near-term earnings visibility; what enterprises are investing in is long-term operational resilience,” he said.

The analyst explained that history suggests that sharp drawdowns in technology stocks often occur at moments of inflection—when old delivery models are being questioned but new ones are not yet fully reflected in financial statements. “The current correction appears less a signal of declining relevance and more a reflection of markets struggling to price a rapid shift in how enterprise value will be created going forward,” he said.

“However, markets often conflate disruption with destruction. While certain service-oriented roles will inevitably face pressure, the broader implication is a redefinition of value creation rather than its elimination. Enterprises are not reducing spend; they are reallocating it—from effort-based billing toward outcome-based execution, platform-led delivery, and AI-native architectures. In such transitions, incumbents with deep domain expertise, data access, and client trust are more likely to adapt than be displaced,” Joshi added.

Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara, said that the sell-off in Indian IT stocks appeared to be more of a sentiment-based reaction than a sudden deterioration in fundamentals. He said that the markets may be overestimating the AI threat in the short term.

“AI will certainly disrupt pricing and delivery structures, but it will also increase the addressable market for early movers. In the short term, IT stocks are likely to remain volatile as investors recalculate margins and visibility. In the medium term, IT companies that adopt AI capabilities will lead the charge, and the laggards will fall behind,” he said.

"This current IT stock crash is more of a knee-jerk reaction," Informist quoted Sumit Pokharna, Vice President of Research at Kotak Securities, as saying. There are fears that the number of clients for core software developers may be hurt by AI tools, considering that AI players could replace core software and business models based on outsourcing, according to the analyst.

However, Pokharna believes investors need to wait and watch how customisable these AI models can be as Indian IT companies operate at a service-provider level for US companies, relatively shielded to AI-related developments.

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