Infosys, TCS to HCL Tech: IT stocks crash up to 6% — What's behind the selloff?

IT stocks crash: Indian IT stocks, including tech behemoths like Tata Consultancy Services, Infosys and Wipro, fell like ninepins in the early morning trade on Wednesday, February 4, tracking an overnight decline in tech stocks on Wall Street amid concerns that artificial intelligence could disrupt data and professional services industry.

The recently updated artificial intelligence (AI) chatbot by Anthropic is being seen as the main culprit behind the tech selloff, as investors worry it could eat into the core business of IT services firms.

Infosys share price crashed 6% to its lowest level in nearly three months on the NSE. IT bellwether TCS shares, too, lost 6% in intraday deals today. Wipro stock was down 6.7% and HCL Tech 6.44%. All IT index constituents remained in the red, dragging the Nifty IT index lower by 5.99%.

Why are investors worried about Anthropic?

AI company Anthropic has released new plug-ins for its Claude Cowork agent that can automatically handle tasks in areas like law, sales, marketing, and data analysis, according to Reuters. This development has raised concerns of AI displacement.

Meanwhile, India—often seen by analysts as an anti-AI trade—remains a major software services provider for many US companies, resulting in a decline in Infosys and Wipro ADRs overnight.

For service-heavy IT models built on long execution cycles and linear headcount growth, this creates understandable near-term anxiety.

Claude Agents can now directly carry out tasks that previously required users to work through Salesforce or ServiceNow interfaces.

The selloff was visible across the globe as tech stocks from the US, Europe, to Asia tumbled. Most large-cap US technology stocks ended Tuesday's session lower. Gartner ended the day with cuts of 21%, while others like Nvidia, Meta and Microsoft lost over 2% each, and Oracle shed 3.4%.

In Asian trading, cloud-based accounting software maker Xero slid as much as 15% in Sydney trading, the most since March 2020. Hong Kong-listed Kingsoft Cloud Holdings Ltd. and Japan’s Nomura Research Institute Ltd. dropped at least 6% each, a Bloomberg report stated.

Global brokerage firm called it ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks,” the report added.

The sharp correction in the Nifty IT index needs to be viewed through the lens of structural disruption rather than just cyclical weakness, said Bhavik Joshi, Business Head, Invasset PMS.

"The significance of platforms now deploying AI-driven systems capable of executing complex SAP migrations and enterprise transformations in weeks — work that previously required years of human-led effort — cannot be overstated. This is not incremental automation; it represents a fundamental compression of time, cost, and manpower across core enterprise processes," he added.

History suggests that sharp drawdowns in technology stocks often occur at moments of inflection—when old delivery models are being questioned but new ones are not yet fully reflected in financial statements. The current correction appears less a signal of declining relevance and more a reflection of markets struggling to price a rapid shift in how enterprise value will be created going forward, he said.

Is IT stock selloff likely to sustain?

Advanced AI tools from firms like Anthropic could automate tasks traditionally outsourced to Indian IT services. This has raised doubts about the sustainability of the human-intensive business model and triggered risk-off selling in IT stocks.

Additionally, currency dynamics have added pressure, as a stronger rupee reduces margin realisations for companies earning in US dollars while spending in rupees. Valuation concerns and demand uncertainties in key markets have further intensified the decline, according to analysts.

Pranay Aggarwal, Director and CEO of Stoxkart, said looking ahead, the sector is more likely to transform than decline as AI competition rises. Labour-intensive models will be challenged by automation, pushing firms toward AI-led services, digital transformation, cloud, cybersecurity, and higher-value consulting where human expertise remains essential, he said.

"Industry projections still indicate steady growth of around 6–7% in the coming years, with strong demand for specialised AI and digital skills, making adaptation and upskilling crucial."

He believes the current market reaction appears largely sentiment-driven. While fears of disruption to outsourcing revenues have led to aggressive selling, this may reflect short-term anxiety rather than structural long-term damage. "With Indian IT firms actively investing in AI capabilities, the present correction seems more like an overreaction to immediate developments than a sign of irreversible impact," he added.

Abhinav Tiwari, Research Analyst at Bonanza, also said that today's reaction is extreme and it will settle in a day or two because this will not impact the fundamentals on an immediate basis, because companies when they secures order are typically for a longer term horizon, say a 3-5 years timeline.

Hence, Tiwari believes that with reasonable valuation and consistent order wins, today’s sell off to settle in the coming days as investors focus back on earnings, as during the ongoing quarter, we have seen the BFSI vertical driving momentum for Indian IT players, and despite seasonally weak quarter on account of furloughs, midcap IT companies fared relatively better than their larger players.

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