The Indian technology sector is witnessing a massive sell-off, with the NIFTY IT index plunging more than 10% in just two trading sessions. This sharp decline comes as investors grapple with growing concerns over Artificial Intelligence (AI) disrupting traditional business models. Why IT stocks are falling has become the central theme on Dalal Street as the rout intensifies across large-cap and mid-cap software exporters.
The Two-Day Market Carnage
The NIFTY IT index faced a brutal opening on Friday, February 13, tumbling as much as 5.24% to hit a session low of 31,422.60. This follows a similarly disastrous Thursday where the index suffered heavy losses. In total, the sectoral gauge has shed 10.46% from its February 11 closing level of 35,095.15.
The bloodbath was visible across the board. Heavyweights like Infosys and TCS led the decline, dropping 5.5% and 4.5% respectively. Other major players including HCL Tech, Wipro, and LTIMindtree also saw significant erosion in their market capitalization, leaving investors searching for a bottom.
Global Tech Meltdown and Wall Street Cues
The primary catalyst for this intensified selling pressure originated from the US markets. Overnight, Wall Street closed deep in the red as the Nasdaq Composite dropped over 2%. Investor sentiment was dampened by Cisco Systems, which issued a cautious outlook for the current quarter, leading to a 12% crash in its stock price.
This global weakness has heightened fears that the corporate spending cycle on technology might be slowing down. When US tech giants sneeze, Indian IT firms—which derive a majority of their revenue from North American clients—invariably catch a cold.
Understanding Why IT Stocks are Falling Amid AI Fears
The narrative surrounding the tech sector has shifted from AI being a growth driver to AI being a potential disruptor. Investors are increasingly worried that generative AI startups could soon replace the traditional outsourcing models that Indian IT firms have relied on for decades.
There is a growing consensus that AI-driven automation could erode the pricing power of legacy service providers. If machines can perform coding, testing, and maintenance tasks at a fraction of the cost, the labor-arbitrage model of Indian IT companies faces an existential threat.
Disruption Across Sectors
The anxiety is not limited to software services alone. Recent reports suggest that AI tools are beginning to chip away at margins in logistics, real estate, and financial services. For instance, trucking firms like C.H. Robinson recently saw a 14% plunge on fears that AI efficiencies could reduce revenue streams.
In the real estate sector, there are concerns that AI-led job losses could lead to a decline in office space demand. This “AI-anxiety” is creating a ripple effect, causing institutional investors to trim their exposure to technology-dependent stocks globally.
Vishal Sikka on the Future of Services
Amidst this turmoil, former Infosys CEO and current Vianai founder Vishal Sikka offered a more nuanced perspective. Speaking to CNBC-TV18, Sikka noted that while generative AI offers 20–30 times productivity gains, its impact on the services sector will be gradual.
He emphasized that the pace of change is often dictated by the “slowest link” in the chain. However, he warned that Indian IT firms must pivot quickly. According to Sikka, the industry needs to move from simply “managing the known” to “creating the unknown” to stay relevant in an AI-first world.
Domestic Market Reaction
On the National Stock Exchange (NSE), the sentiment remained overwhelmingly bearish. All 10 constituents of the NIFTY IT index were trading in the red during the Friday session. Mid-cap stocks, which are usually more volatile, also faced the brunt of the selling pressure as retail investors rushed to exit.
Analysts suggest that while the long-term potential of AI is immense, the short-term transition period will be painful for companies that are slow to adapt. The current market correction reflects a “valuation reset” as investors factor in these new structural risks.
Technical Outlook and Support Levels
Market technicians observe that the NIFTY IT index has broken key support levels during this 10% slide. The next crucial psychological level is watched closely by traders to see if bargain hunting emerges. However, given the intensity of the selling and the weak global backdrop, the bias remains firmly on the downside.
Investors are advised to remain cautious and look for signs of stability in the US tech space before making fresh entries into Indian IT counters. For now, the focus remains on how these companies integrate AI into their core offerings to protect their margins.
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