Nifty IT Index heads for worst February in 23 years amid AI disruption concerns

Technology firms and investors are ramping up bets on India’s data-center sector, driven by rising digital consumption, the increasing adoption of artificial intelligence and data localization requirements

• Nifty IT Index faces worst February in 23 years, down 21 percent
• Major IT stocks like Infosys, TCS, Wipro see sharp declines
• AI disruption fears drive selloff, mutual funds cut IT holdings

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The Nifty IT Index is heading towards its worst February in 23 years amid continued selling pressure, as the sector remains weighed down by concerns over artificial intelligence-led disruption.

The Nifty IT index has declined 21 percent so far in February 2026, marking its steepest monthly fall since April 2003, when it dropped more than 24 percent.  So far this month, Nifty IT index lost over Rs 6.4 lakh crore market cap.

Among individual stocks, Infosys has fallen 21 percent so far in 2026, TCS has declined 19 percent and Wipro has lost 24 percent. Tech Mahindra and HCL Tech have dropped 16 percent and 18 percent, respectively.

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The recent selloff follows a scenario outlined by Citrini Research in its report The 2028 Global Intelligence Crisis: A Thought Exercise in Financial History, from the Future, which states that India’s three IT majors — TCS, Infosys and Wipro — are expected to see contract cancellations accelerate through 2027 as artificial intelligence tools increasingly replace outsourced human coding.

The report notes that India’s IT services sector exports over $200 billion annually and is the single largest contributor to the country’s current account surplus, offsetting its persistent goods trade deficit. It says the sector’s model is built on the cost advantage of Indian developers compared with their American counterparts. However, the marginal cost of an AI coding agent has collapsed to what the report describes as essentially the cost of electricity. In the scenario presented, companies increasingly deploy AI-driven coding tools in place of outsourced development teams.

With the ongoing selloff, mutual funds’ combined investments in IT stocks have declined by over Rs 70,000 crore, with current holdings standing at Rs 3.2 lakh crore in February compared with Rs 3.95 lakh crore in January 2026. Foreign institutional investors’ holdings have fallen by nearly Rs 85,000 crore to Rs 4.49 lakh crore as of February 15, the lowest level in four years, down 16 percent from Rs 5.34 lakh crore at the end of January 2026.

Global brokerages Jefferies India and CLSA have also revised their stance on the sector. Jefferies said artificial intelligence may structurally change the IT business mix towards consulting and implementation while shrinking managed services. It said this could increase cyclicality and require changes in talent and operating models.

While third-quarter results led to earnings upgrades for nearly all IT firms, Jefferies said recent developments in AI have raised concerns about the medium- to long-term growth outlook and driven up to 27 percent derating. It said stock performance is likely to be tied more to the longer-term business outlook than near-term earnings delivery.

The brokerage outlined multiple growth scenarios. In the best case, maintaining long-term revenue growth in line with the previous decade would imply price-to-earnings multiples of 14 to 22 times for large IT firms, with Infosys, HCL Tech and TCS offering around 15 percent rerating potential, and 23 to 42 times for mid-sized firms such as Hexaware and IKS offering 35 to 45 percent rerating potential.

In the worst case, revenue compound annual growth rate over FY26-31 could be 3 percent lower, followed by no growth beyond FY31, leading to potential derating of 30 to 65 percent, with Wipro having the lowest and Coforge the highest derating potential. Assuming 3 percent lower growth over FY26-36 and 1 percent lower terminal growth, multiples could still decline by 10 to 35 percent for large IT firms and up to 15 percent for mid-sized firms.

Jefferies cut its earnings estimates by 1 to 4 percent and expects 6 percent earnings compound annual growth rate over FY26-28. It expects Coforge, Sagility and IKS to grow at 19 to 25 percent compound annual growth rate driven by higher revenue growth. Its estimates are 3 to 14 percent below consensus. The brokerage cut price targets by up to 33 percent, downgraded Infosys, HCL Tech and Mphasis from Buy to Hold, and TCS, LTIM and Hexaware from Hold to Underperform.

Meanwhile, CLSA said fears of AI-led disruption in Indian IT services appear overdone, citing channel checks that indicate no material shift in business positioning and management commentary pointing to a potential macro recovery in calendar year 2026. The brokerage maintained selective stock preferences including Infosys, Tech Mahindra, Coforge and Persistent Systems, while cutting price targets across the board due to valuation derating.

CLSA said that despite heightened debate around AI disruption, client spending behaviour, deal structures and service mix have not changed meaningfully. It added that AI is being absorbed largely as an incremental efficiency and productivity lever rather than a wholesale replacement of traditional IT services.