TCS, Infosys to Coforge: IT stocks crash up to 9% after three-day rally; what's behind the selloff?

The relief rally that was underway in Indian information technology (IT) stocks for three days came to a screeching halt on Wednesday, 3 June, as investors resorted to profit booking amid the broader market selloff, resulting in a near 6% decline in the Nifty IT index.

All 10 index constituents of the Nifty IT pack traded significantly lower in trade today. IT bellwether Tata Consultancy Services (TCS) emerged as the biggest loser as it crashed almost 9% to ₹2,224.80. Other heavyweights like Infosys, HCL Technologies and Tech Mahindra were down between 4-6%.

LTIMindtree also declined over 8%. Coforge and Persistent Systems lost 6% each and Mphasis 4%, while Oracle Financial Services Software (OFSS) lost 4%. Together they pulled the Nifty IT pack 5.8% lower to 29,301, making it the worst-performing index on the NSE today.

This fall comes after a 7% rise in the IT index over the last three trading sessions. Kranthi Bathini of Wealthmills Securities said that Indian IT companies are trading near their historical average valuations, and in some cases even below their long-term average price-to-earnings multiples. This attracted buying interest at lower levels, leading to the recovery seen in IT stocks over the past week.

Positive commentary around AI adoption and a weaker rupee have also supported sentiment, although US growth and IT spending trends remain the key factors to watch, he added.

Time to steer clear or buy IT stocks?

The risk of AI deflation has made IT one of the most unpopular choices of investment for investors. At a time when semiconductor, chip and tech stocks globally are rising, the Indian IT firms have faced intense selling pressure. India has rather emerged as an anti-AI trade.

While AI is expected to create new opportunities for Indian IT companies, it is also making software development much cheaper and faster, which does not bode well for the labour-intensive Indian IT services sector. Over the next few years, losses from lower pricing may be bigger than the gains from new AI projects, according to brokerages.

"A significant portion of the tech spending increase gets consumed by technology price inflation and higher cloud and software consumption that cannot be addressed by Indian IT, which weakens the translation of the spending increase in technology to spending increase with third-party providers," said Kotak Institutional Equities in a note today.

Calling the IT stocks' recent move a "dead cat bounce, not the start of a durable reversal", Harshal Dasani, Business Head at INVasset PMS, said that IT is not correcting because of one AI headline; the deeper issue is valuation discipline.

He said that when a sector is delivering low single-digit growth and still trades at mid-to-high teen earnings multiples, the margin for error is thin. "Rupee depreciation has cushioned reported numbers, but it has not solved the demand problem. Clients are still cautious, discretionary spending is weak, and AI is compressing the labour-arbitrage model that Indian IT was built on," he added.

The second pressure point for IT remains flows. "FIIs do not need to own Indian IT at any price when Korea, Taiwan, Japan and the US offer cleaner AI-linked earnings visibility. That relative opportunity cost is hurting the sector," he added. A Fortune India report, citing data from Motilal Oswal Financial Services, stated that FIIs have sharply reduced their exposure to the technology sector, with allocation falling to an all-time low of 7.3% in Nifty-500 companies in the March quarter of 2026.

The sector needs evidence of AI-led revenue replacement, not only AI commentary, according to Dasani. Until that happens, rallies in IT are likely to be sold into. "The risk-reward remains unfavourable."

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.