Indian IT stocks remained under heavy pressure on Friday, extending losses for a third consecutive session as selling intensified across the sector amid concerns regarding AI-led disruptions. The pressure was further aided by fading expectations of a near-term interest rate cut by the US Federal Reserve after stronger-than-expected labour market data.
The Nifty IT index lost over 5% in trade today and 12% in 3 session, market experts believe this is not just a sentiment driven decline but a fundamental fall.
Prasenjit Paul, Equity Research Analyst at Paul Asset & Fund Manager at 129 Wealth Fund, said the current correction reflects deeper structural challenges rather than a temporary sentiment-driven sell-off.
“The sharp correction in IT stocks reflects a structural headwind rather than a temporary sentiment-driven sell-off. The rise of agentic AI signals that the conventional manpower-led, linear revenue growth model is under pressure,” he stated.
Paul cautioned that the era of broad-based rerating for generic service-driven IT companies may be over and advised investors to be selective. At the same time, he highlighted that such phases often create divergence within the sector. According to him, niche IT segments and IP-led product software companies operating in mission-critical areas such as banking, healthcare and defence could emerge stronger, as AI acts more as an enabler than a disruptor for these businesses.
Technical damage raises red flags for investors
From a technical standpoint, the sell-off has significantly weakened the index structure. Sachin Gupta, Vice President – Research at Choice Broking, highlighted the extent of the decline, saying, “The Nifty IT Index’s 15% vertical decline from 40,301 to 31,550 appears to be driven by what many are calling an existential ‘AI shockwave’, triggered by the launch of Claude Cowork, a next-generation autonomous AI agent.”
Gupta noted that on the weekly charts, the index has broken below its 200-week EMA and is forming a large head-and-shoulders pattern, a classic sign of potential trend reversal. He added that although the daily RSI has slipped below 20, indicating extremely oversold conditions that could lead to a short-term bounce, any recovery is likely to face stiff resistance. Unless the index reclaims key long-term averages, he believes a “sell on rise” strategy remains statistically more favourable for traders.
Why IT stocks are under pressure
The Nifty IT index crashed over 5% to an intraday low of 31,422.60, marking its lowest level since October 2023. From recent highs, the index has shed about 12% in just three trading sessions, highlighting the severity of the correction. The weakness was not confined to IT alone. Broader benchmarks also saw sharp selling, with both the Nifty 50 and the Sensex declining more than 1%, reflecting a broad-based risk-off mood among investors.
Technology stocks have been facing sustained selling pressure amid rising concerns over whether massive investments in artificial intelligence will generate proportionate returns. Investors are increasingly worried about how AI could reshape enterprise spending, compress pricing, and intensify competition from AI-native players.
Vinod Nair, Head of Research at Geojit Investments Limited, said, “AI is creating a structural shift in Indian IT services by reducing timelines and automating tasks, putting pressure on the traditional headcount-based outsourcing model.” He pointed out that routine-heavy roles may see layoffs as fewer employees are needed to deliver the same outcomes, while clients are steadily shifting toward outcome-based pricing models.
Adding to the cautious sentiment, US job growth unexpectedly accelerated in January, while the unemployment rate fell to 4.3%. These indicators of labour market stability have strengthened expectations that the Federal Reserve could keep interest rates elevated for longer as policymakers monitor inflation trends, further weighing on rate-sensitive sectors such as IT.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
