The Indian equity market witnessed a sharp sell-off on Wednesday as shares of major Information Technology (IT) companies tumbled. Investors reacted sharply to the news of a breakthrough in artificial intelligence by US-based startup Anthropic. The sudden decline in heavyweights like Infosys, TCS, and Wipro highlights a growing anxiety: is generative AI finally moving from a buzzword to a direct threat to the traditional IT services model?
Market Bloodbath: IT Majors Lose Grip
The opening bell brought immediate pain for tech investors. Shares of Infosys, Wipro, HCL Tech, Tata Consultancy Services (TCS), and Persistent Systems fell by as much as 6% in early trade. This downward spiral dragged the benchmark Sensex down significantly, mirroring a weak session on the Nasdaq, where tech stocks lost nearly $300 billion in market value overnight.
The primary catalyst for this “IT stocks crash” is the increasing capability of AI agents to perform complex, high-value tasks that were previously the bread and butter of Indian outsourcing firms.
The Anthropic Factor: Automating the Professional Class
Anthropic, an AI firm founded by former OpenAI executives, recently unveiled a suite of tools designed to automate corporate legal functions. This isn’t just a simple chatbot; the tool can review contracts, manage compliance, sort NDAs, and even draft legal briefs.
While Anthropic clarified that “AI-generated analysis should be reviewed by licensed attorneys,” the message to the market was clear. If AI can handle complex legal documentation and customer service operations with minimal human intervention, the “manpower-heavy” model of Indian IT firms faces a structural risk.
Pricing Power and Margin Pressure
Investors are increasingly uneasy about how Indian IT firms will maintain their profitability. Historically, these companies have thrived on “labor arbitrage”—hiring large numbers of engineers to perform tasks for Western clients at a lower cost.
However, as AI solutions become more sophisticated and accessible, clients may no longer see the need for large external teams. Market analysts worry that IT firms might lose their pricing power, forced to lower costs to compete with hyper-efficient AI tools, eventually leading to a squeeze on profit margins.
Jefferies Trims Stake Amid Global Tech Rout
The negative sentiment was further validated by international brokerage Jefferies. In a recent report, Jefferies lowered its allocation to the Indian IT sector, citing a cautious outlook. The brokerage reduced the sector’s weight in its India model portfolio to 5.6, a stark contrast to the 9.7 weighting in the MSCI India index.
This move comes at a time when Foreign Portfolio Investors (FPIs) have already been pulling out of Indian equities. Overseas funds have reportedly withdrawn nearly $34 billion over the last 16 months, leaving the IT sector particularly vulnerable to news-driven volatility.
Impact Beyond India: The Nasdaq Connection
The tremors were felt globally. In the US, the Nasdaq Composite dropped 1.43%, while tech titans like Nvidia and Microsoft saw their shares slip by nearly 3%. Even Alphabet and Amazon faced pressure ahead of their quarterly earnings reports.
What Lies Ahead for the Tech Sector?
The current crash is a reality check for the industry. While Indian IT firms are also investing heavily in their own AI capabilities, the pace of innovation from startups like Anthropic and OpenAI is creating a “disruption gap.” The market is now waiting to see how the ‘Big Five’ of Indian IT adapt their business models to incorporate AI without cannibalizing their existing revenue streams.
For now, the sentiment remains “wait and watch.” If more enterprises begin adopting open-source automation for sales and customer service—as Anthropic’s new tools suggest—the pressure on Indian IT stocks could persist in the medium term.
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