IT stocks extend slide as CLSA, HSBC cut target prices, I…

Nifty IT dropped 3.5 per cent to hit an intraday low of 30,417.75, slipping from its previous close of 31,550.50, with all constituents trading in the red

IT stocks remained under pressure on Tuesday, dragging the Nifty IT index lower for the fifth consecutive trading session, as global brokerages turned cautious on the sector amid rising concerns over artificial intelligence-led disruption and slowing growth visibility. AI startup Anthropic has recently stated that its Claude Code could help modernise COBOL, a programming language. Vinod Nair, Head of Research at Geojit Investments Limited, said a global sell-off in technology stocks triggered a sharp correction in domestic IT shares after the launch of Anthropic’s new AI tool, Claude Code.

He noted that the rollout has intensified concerns that advancements in artificial intelligence is outpacing enterprise adoption. According to the market expert, weakness in US technology stocks and Indian IT ADRs further dampened sentiment, compounded by delays in US spending amid renewed tariff-related uncertainty. Investors are also cautious that substantial AI investments by companies such as Alphabet and Amazon may not yield commensurate returns.

Nifty IT ended more than 4 per cent lower, and shed 5.3 per cent to hit a 52-week low of 29,875 in today’s session, slipping from its previous close of 31,550.50, with all constituents in the red. Major losers Persistent Systems, Coforge, HCL Tech, LTIMindtree and Tech Mahindra slumped over 6-7 per cent . Among the heavyweights, Infosys and TCS settled 4 per cent lower at ₹1,275.50 and ₹2,573.70, respectively, after hitting 52-week lows in early trade.

Wipro fell 3 per cent to ₹200.14, hitting a 52-week low of ₹199.36, compared with its previous close of ₹205.89. A report by Citrini Research sketched out a scenario where companies such as Tata Consultancy Services Ltd., Infosys Ltd., and Wipro Ltd. could face contract cancellations through 2027. Sachin Gupta, VP – Research at Choice Broking, said the Nifty IT index slipped into a clear bearish phase in February 2026 after correcting nearly 21 per cent.

The country’s IT services sector exported over $200 billion annually, the single largest contributor to India’s current account surplus and the offset that financed its persistent goods trade deficit. The entire model was built on one value proposition: Indian developers cost a fraction of their American counterparts. But the marginal cost of an AI coding agent had collapsed to, essentially, the cost of electricity, Citrini report read.

The launch of highly efficient enterprise tools such as Anthropic’s Claude Code sparked fears that generative AI could begin eating into traditional Application Development and Maintenance (ADM) revenues — a key revenue stream for Indian IT companies, Gupta added. HSBC Global Research said it now expects a 14 – 16 per cent gross deflationary risk from AI over the next few years to overall sector revenues, compared with its earlier estimate of 8–10 per cent.

Analysts led noted that while proactive companies may offset some of the pressure through alternative revenue streams and productivity gains, the near-term impact of AI-led pricing disruption could weigh on growth. The brokerage added that although US corporate results remain strong and the macro backdrop for IT spending in 2026 appears favourable, Indian IT valuations are not cheap in absolute terms, even if they look undemanding on a relative basis.

In another report titled ‘software will eat AI’ covering the sector in the US, HSBC Global Investment Research said that enterprise software will not be threatened by AI, but rather, AI will be embedded within software platforms. Software valuation levels are at historic lows, even though the sector is poised to expand massively, it added. CLSA trimmed target prices across the Indian IT pack, reflecting a more cautious outlook.

While maintaining outperform ratings on select names, the brokerage reduced price targets for Infosys, TCS, LTIMindtree, Persistent Systems, Coforge and Tech Mahindra. It retained hold ratings on HCLTech and Wipro, albeit with lower targets. CLSA said channel checks indicate no significant change in IT services positioning in the AI era so far, but added that continued sector de-rating could challenge long-term growth assumptions despite expectations of a potential macro upcycle in CY26.

Earlier, Jefferies downgraded six Indian IT companies, citing structural changes in business models stemming from disruption caused by AI tools. The brokerage downgraded TCS to underperform from hold and cut Infosys and HCLTech to hold from buy. LTIMindtree and Hexaware Technologies were downgraded to underperform, while Mphasis was cut to hold. Jefferies said IT stocks currently offer higher downside risk than upside even after the sharp correction this year.

However, the brokerage identified Coforge, Sagility and Inventurus Knowledge Solutions as its top picks in the sector. The sustained selling pressure underscores growing investor unease that rapid advances in AI could compress pricing power and reshape traditional outsourcing models, prompting a reassessment of growth and valuation assumptions across the IT services industry. Nair added that structural challenges facing traditional outsourcing models, possible changes in deal sizes and pricing, and subdued earnings growth projections for FY27–28 continue to weigh on the sector.

With valuations hovering around 19 times forward earnings, he said the risk-reward appears unfavourable given the muted outlook, leaving the sector under pressure in the near term.

Summary

This report covers the latest developments in artificial intelligence. The information presented highlights key changes and updates that are relevant to those following this topic.

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