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Indian IT sector is witnessing one of its sharpest corrections

ICICIdirect Research 04 Mar 2026 DISCLAIMER

The Indian IT sector is witnessing one of its sharpest corrections since the 2008 global financial crisis with the Nifty IT index falling nearly ~19% over the past month, as concerns over AI-led disruption pressure software stocks globally. We have witnessed that post Anthropic announcement of its Claude Cowork plugins, there is a growing market concern on whether AI-led productivity gains could compress traditional revenue streams faster than enterprises are ready to reinvest savings into new digital programs. This “AI diffusion risk” is currently driving valuations, with markets focusing on immediate cost takeout rather than the longer-term demand tailwinds.

IT sector industry leaders, on the other hand, have called AI implementation a ‘big opportunity’. Cognizant’s Chief AI Officer’s commentary highlighted how concerns that Anthropic’s AI tools will rapidly disrupt IT services companies are "overblown” while HCLTech’s CEO noted that the impact on IT services industry from Gen AI led inflation will have an annual revenue impact of just 2-3%.We also highlight that Infosys, on its investor day stated that industry would have a US$300–400 bn AI-first services opportunity by 2030. On the global front, leaders at Anthropic and NVIDIA, have also emphasized that large-scale AI deployment will be led by technology services firms reinforcing the sector’s long-term relevance.

Notably, we saw multiple partnership announcements at the mega India AI summit last week, signalling a strategic pivot similar to earlier transitions to cloud and digital technologies, to drive AI adoption across enterprises. TCS has tied up with OpenAI while Infosys has partnered with Anthropic.
Though, we believe this transition will not be seamless as enterprise readiness remains uneven, and the ability of IT vendors to manage workforce reskilling, redeployment, and potential headcount rationalisation will be critical to margin resilience.

Looking ahead, investors will closely monitor three structural variables: i) Deflation vs. Demand creation i.e., whether AI-driven cost savings translate into new tech spending and timing of the same.ii) Deal mix evolution i.e., AI-led transformation (in the mix) vs delayed discretionary projects and iii) Workforce transition i.e., the sector’s ability to reskill as well as rationalise talent.

While the current correction reflects near-term disruption fears, the long-term thesis remains intact: Indian IT firms are likely to be central to enterprise AI deployment.The question for markets, however, is timing and not relevance. We remain selectively positive and prefer Persistent Systems which is showing early monetisation traction in AI-led programs; LTIMindtree which has already absorbed productivity benefit passthrough and demand softness from a key client, potentially derisking future growth, and, TCS which is accelerating AI based investments/ capex to defend market leadership. For risk-neutral investors, staggered investments via IT ETFs over the next few quarters could also be a prudent approach. Additionally, beyond traditional IT services, we also see opportunity in the digital platform/ analytics-based businesses such as Affle and LatentView which continue to offer relatively stronger structural growth visibility.

View our research recommendation on Infosys Ltd Also explore more on Research page

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