Tata Consultancy Services, India’s most valuable IT company, breached the psychologically critical Rs 10 lakh crore market capitalisation threshold, hitting a fresh 52-week low of Rs 2,776 on the BSE as its shares tumbled 4.5%. The carnage was industry-wide and unsparing as Infosys, HCL Tech, Mphasis, and Wipro all bled 4-5% each, painting the entire IT index red in what bears are calling an existential crisis for the sector.
The combined market capitalisation of all IT stocks in the Nifty IT index collapsed to Rs 27.6 lakh crore, down approximately Rs 1.3 lakh crore, as investors fled en masse from technology names.
“Tech stocks, reeling under the Anthropic shock, are unlikely to recover soon,” warned Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments. “Indian IT will continue to struggle. The switch from IT to other segments will help performing stocks in performing sectors.”
Earlier this month, Anthropic, the US artificial intelligence startup behind the Claude chatbot, unveiled Claude Cowork, an AI “digital coworker” equipped with 11 enterprise automation plug-ins designed specifically for corporate legal teams. The tool can autonomously execute contract reviews, non-disclosure agreement triage, compliance workflows, legal brief preparation, and standardised responses—functions that have traditionally generated billions in revenue for IT services firms.
Overnight, the product launch triggered what international brokerage Jefferies dubbed a “SaaSpocalypse”—a dramatic sentiment reversal from ‘AI helps these companies’ to ‘AI replaces these companies’. Jeffrey Favuzza from Jefferies’ equity trading desk captured the panic: “Trading is very much ‘get me out’ style selling.”
Some analysts are now forecasting revenue deflation of up to 40% as agentic AI shifts from assisting humans to autonomously executing multi-step workflows, a prediction that has sent shockwaves through an industry already grappling with margin pressures and sluggish demand.Adding to the sector’s woes, the latest US jobs data showed the addition of 1,30,000 jobs last month with unemployment falling to 4.3%, numbers that point to the possibility of no rate cuts by the Federal Reserve in the near term, further dimming the outlook for growth-sensitive technology stocks.
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At the core of investor anxiety is a fundamental question: can traditional IT services companies defend their competitive moats against AI disruption?
“The fear with AI is that there’s more competition, more pricing pressure, and that their competitive moats have gotten shallower, meaning they could be easier to replace with AI,” said Thomas Shipp, head of equity research at LPL Financial, which manages $2.4 trillion in brokerage and advisory assets. “The range of outcomes for their growth has gotten wider, which means it’s harder to assign fair valuations or see what looks cheap.”
Industries once considered safe havens from automation like legal services, data analytics, customer support are now squarely in AI’s crosshairs. If artificial intelligence can automate these functions, the massive IT services ecosystem built around delivering them faces an existential reckoning.
Motilal Oswal echoed the pessimism, noting that “AI will render much of legacy software and testing redundant,” drawing parallels to how hyperscalers disrupted infrastructure management services and how BPO was upended in 2015. The brokerage predicts AI-native firms will eventually co-opt the enterprise relationships of traditional IT vendors, reducing them to mere channel partners.
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However, Motilal Oswal identified one crucial variable to monitor: AI-native partnerships over the next 3-6 months, which could drive a pickup in AI services deals by mid-2026 in the form of short-cycle engagements.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)