Nifty IT stocks slump as AI fears and rate outlook weigh on sector

All information technology stocks listed on the benchmark Nifty50 index have remained under sustained selling pressure over the past two years, delivering negative returns to investors, according to BSE Analytics data.

Tata Consultancy Services (TCS), India’s largest IT services company, has fallen by more than 32 per cent over the period. Infosys is down 17 per cent, Wipro has declined 13 per cent and HCL Technologies has slipped 10 per cent. Tech Mahindra stands out as the sole exception, gaining 19 per cent during the same timeframe.

Market participants say the sector has faced a combination of global headwinds and structural concerns. Ajit Mishra, Senior Vice-President (Research) at Religare Broking, said earlier worries about reduced discretionary technology spending in key overseas markets had weighed on sentiment.

“Now, the narrative that artificial intelligence will disrupt the business model of Indian IT companies is causing further damage,” he said, adding that while AI presents a significant challenge, it may be premature to rule out a recovery. He advised investors to maintain limited exposure until greater clarity emerges in the coming quarters.

Technical indicators also point to continued weakness. Ruchit Jain, Vice-President at Motilal Oswal Financial Services, noted that the Nifty IT index slipped below its 200-day exponential moving average of 36,000 earlier this month, signalling a potential shift in trend.

“Since then, the index has remained under pressure, with stocks witnessing volume-led selling. It is advisable to avoid bottom fishing until there are clear signs of a reversal,” he said.

In Thursday’s session, Indian IT shares declined sharply in line with losses among US technology stocks. Stronger-than-expected American jobs data for January dampened hopes of an early interest rate cut by the US Federal Reserve, adding to the sector’s woes.

After dropping 12.6 per cent in 2025, the Nifty IT index has shed around 11 per cent so far in 2026, amid concerns that AI-driven automation could erode revenues and reduce demand for labour-intensive software services.

Vinit Bolinjkar, Head of Research at Ventura Securities, described the recent sell-off as a mix of knee-jerk reaction and genuine anxiety over AI’s long-term impact. He noted that automation could reduce billable hours and headcount at leading IT firms.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said a swift rebound appears unlikely, particularly after steep declines in the American Depositary Receipts of major Indian IT companies listed in the US.

He added that robust US employment data — showing 130,000 jobs added last month and unemployment easing to 4.3 per cent — suggests the Federal Reserve may delay rate cuts. In India, too, the interest rate easing cycle appears to have run its course, with economic growth steady and inflation projected to move towards the Reserve Bank of India’s long-term target by the end of the 2026–27 financial year.

Reflecting the sector’s underperformance, TCS has slipped in the rankings of India’s most valuable companies. ICICI Bank overtook TCS on 12 February to become the country’s fifth-largest firm by market capitalisation, a day after State Bank of India also surpassed the IT major.

Shares of ICICI Bank rose nearly 2 per cent, taking its market value to approximately Rs 10.2 lakh crore, while TCS fell around 5 per cent, pushing its capitalisation down to Rs 9.99 lakh crore. This marks the first time since December 2020 that TCS has dropped below the Rs 10 lakh crore threshold.

With agency input