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IT Sector Market Wrap: AI related concerns led IT sell-off

ICICIdirect Research 13 Feb 2026 DISCLAIMER

IT sector as a whole has faced a sharp sellout after Anthropic launched its AI-enabled workplace solution Claude Cowork plug-ins last week, which has raised concerns about structural disruption to traditional application development and maintenance (ADM) and testing revenues.
The Nifty IT index corrected around ~9% in last one week and ~15% in last one month, as investors remained wary of the long-term demand outlook for legacy IT services.
Note, this sell-off is not driven by immediate earnings downgrades. Instead, the market is reacting to medium-term concerns especially the possibility that AI tools could write code, fix bugs, and deploy systems faster, reducing the need for large engineering teams. Industry estimates have suggested that Gen AI could impact roughly 25–30% of traditional application development, testing and maintenance work which contribute nearly 1/3rd of industry revenues, with potential of 10–12% dent on overall revenues over 3-4 years.
We have already seen the dual impact of slower hiring or workforce rationalisation on one hand, and efficiency gains on the other hand. Going ahead, larger firms may absorb this transition better due to capability building and stronger balance sheets & AI investments/capex.
That said, valuations too are now turning supportive. After a 1–3-year correction, most IT stocks are trading below long-term averages. (For example, TCS at 18.8x trades at nearly a 30% discount to its 10-year median PE of 26.7x, Infosys at 18.5x, is at about a 19% discount to 10-year historical average of 22.8x). This suggests a large part of the disruption risk may already be priced in.
From an outlook perspective, we remain selectively positive. Companies with strong AI capabilities, digital transformation exposure, and healthy deal pipelines are better positioned to lead the next growth cycle. Our preferred picks include TCS, LTIMindtree, and Persistent Systems, with Persistent standing out due to strong growth visibility, capability in AI-led services and valuation comfort (compared to historical average it is trading at ~10% discount to its 5-year median PE). Additionally, we also see opportunity in the digital platform/ analytics based businesses such as Affle and LatentView. For risk-neutral investors, staggered investments via IT ETFs over the next few quarters could also be a prudent approach.

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