India's major technology companies faced a severe market downturn in February 2026, as fears surrounding the rapid rise of artificial intelligence (AI) caused investors to pull back. This sharp sell-off erased over $50 billion in market value from the country's leading IT firms, including Tata Consultancy Services, Infosys, and Wipro. The Nifty IT index, which tracks India's top software services companies, recorded its steepest weekly fall since March 2020 and its worst monthly performance in nearly 23 years.[techinasia+9]
AI Disruption Hits Market Value
The market turbulence intensified on February 24, 2026, following a report from Citrini Research that highlighted AI's potential to disrupt the sector. Shares of Infosys, TCS, and Wipro each declined more than 3% on that day.The Nifty IT index plunged over 20% in February 2026 alone, reflecting deep concerns about the industry's future.This decline was triggered partly by the unveiling of Anthropic's Claude Code tool, which can modernize software written in COBOL, a legacy programming language critical for many banking and government systems.This development sparked fears that AI could replace a significant portion of the work currently handled by Indian IT service providers.[techinasia+7]
The collective market capitalization of India's top IT firms, including TCS, Infosys, HCLTech, Wipro, and Tech Mahindra, saw a massive erosion.Fresh selling in these five large-cap IT names alone wiped out over ₹84,000 crore in their combined market capitalization on February 24. The Nifty IT index lost nearly ₹5 lakh crore in market capitalization in February alone.[businesstoday+1]
The Core of the AI Threat
The primary concern among investors is that generative AI tools will fundamentally disrupt the traditional outsourcing model that has driven India's IT sector for decades. AI is seen as capable of automating repetitive tasks, streamlining coding processes, and accelerating project timelines, potentially reducing the need for extensive human workforce, especially in entry-level and testing roles. Citrini Research suggested that major firms like Tata Consultancy Services, Infosys, and Wipro could face increased contract cancellations through 2027 due to AI advancements.[in+6]
Industry leaders have voiced stark warnings about the future of jobs. Former HCL CEO Vineet Nayar stated that AI could lead to IT companies needing 70% fewer employees. He also predicted that Indian IT firms will prioritize profits over jobs as AI impacts the sector. An Infosys executive, Satish HC, noted that automation would result in fewer employees being hired in the coming three to five years. Silicon Valley investor Vinod Khosla went further, predicting that India's IT services and business process outsourcing (BPO) sectors could "almost completely disappear" within the next five years. He emphasized that AI would soon be better than most humans at most tasks.[techinasia+6]
Industry Leaders Respond and Adapt
Despite the widespread fears, many industry leaders and analysts also highlight the opportunities presented by AI. Microsoft India President Puneet Chandok stated that AI will "unbundle jobs" rather than eliminate them, meaning tasks within roles will evolve. He explained that AI would simplify work and allow humans to focus on decision-making and uniquely human strengths. Infosys Chief Executive Officer Salil Parekh underscored the potential, stating that AI is creating a "$300 billion services opportunity" by making previously impossible tasks economically viable.[livemint+1]
Indian IT firms are actively embracing AI. Microsoft reported that Infosys, TCS, Wipro, and Cognizant plan to roll out over 200,000 Copilot AI assistant licenses to streamline internal work. TCSformed an AI.Cloud business unit and a dedicated NVIDIA unit within it. Infosys has partnered with Anthropic to develop and deploy advanced AI solutions for enterprise clients, a move that shifted investor sentiment from pure threat to potential integration. Arundhati Bhattacharya, Chairperson and CEO of Salesforce India, cautioned against oversimplification, saying, "Markets will say a lot of things, and not all of it comes true." Sheurged the industry to adapt and "ride the wave" of change.[venturasecurities+6]
The Path Ahead for India's IT Sector
Analysts and industry experts suggest that the Indian IT sector, valued at over $245 billion, possesses the resilience to adapt to these technological shifts. Thetransition will likely involve a shift in the business mix, moving from traditional managed services towards consulting and implementation, which are less susceptible to immediate AI automation. This shift will require a significant focus on upskilling the workforce. Experts believe that IT professionals must learn and apply AI tools proactively to remain relevant.[capria+4]
While the near-term outlook may involve challenges like pressure on pricing and deal sizes, many large investors view the current market correction as an opportunity to accumulate stocks for long-term positions. They argue that enterprises adopting AI will still require extensive support in areas such as integration, data management, cloud infrastructure, and cybersecurity, where Indian IT companies have strong capabilities. Thelong-term impact of AI on India's economy is seen by some as potentially boosting productivity growth and plugging development gaps in sectors like healthcare and education beyond the coming decade.[indiatoday+4]
The Indian IT sector is at a crossroads, navigating the immediate fears of AI-driven disruption while actively working to integrate AI into its service offerings and adapt its business models for future growth.[capitaleconomics]
