The damage has been indiscriminate and severe. Over the recent seven-day massacre, Infosys plunged 16.5%, TCS tumbled 15%, HCL Tech shed 13%, while Wipro and Tech Mahindra lost 10-11% of their value. TCS shares have now crashed 40% from their all-time high hit in August 2024, dragging the bellwether’s market cap below Rs 10 lakh crore to levels last seen in November 2020.
With billions more potentially at stake and volatility showing no signs of abating, the question haunting Dalal Street is no longer if AI will disrupt Indian IT, but how much further these stocks can fall before finding a floor.
The trigger? Anthropic’s Claude 4.6 and Cowork agents have ignited what some are calling a “SaaSpocalypse”—a structural reckoning for an industry built on headcount-based billing.
Read More: IT stocks go into a tailspin as US data adds to AI disruption
“AI is creating a structural shift in Indian IT services by reducing timelines and automating tasks, putting pressure on the traditional headcount-based outsourcing model,” Vinod Nair, Head of Research at Geojit Investments warned. “Layoffs are likely in routine-heavy areas as fewer people will be needed to deliver the same outcomes. Even ERP implementation, as highlighted by Palantir’s recent focus, is now vulnerable to AI disruption.”
“Clients are shifting toward outcome-based pricing,” Nair added. “In the coming quarters, AI adoption could create headwinds for deal wins, potentially impacting topline, making close monitoring of deal flow essential to assess its real impact.”The selling pressure was further compounded by stronger-than-expected US employment data, with a marginal decline in the unemployment rate, which has reduced expectations of an early rate cut by the US Federal Reserve.
Dr. Ravi Singh, Chief Research Officer at Master Capital Services, acknowledges the sector faces real structural headwinds that could keep pressure on stocks. “There are real structural questions investors are asking—how fast will traditional services slow down, what will happen to pricing power, and whether margins hold up as automation increases,” he said. “So while some of the selling is an emotional reaction, the market is also pricing in slower growth and margin pressure.”
Singh noted multiple pressures converging simultaneously. “Global tech sentiment has turned soft, particularly after big U.S. tech names corrected, which naturally spills over into Indian IT. At the same time, clients in the U.S. and Europe are being more cautious with discretionary IT spends, especially on older projects, until budgets are clearer.”
Yet amid the panic, some market veterans see opportunity emerging from the wreckage though they caution the bottom may not be in yet.
“The recent correction triggered by Anthropic’s Claude 4.6 and Cowork agents marks a structural pivot, not an ‘end of era’ for software services,” said Vinit Bolinjkar, Head of Research at Ventura. “Historically, every major automation wave—from the transition to Cloud to the rise of DevOps—was predicted to kill the sector, yet each eventually expanded the addressable market.”
Bolinjkar argues that while AI agents will commoditize manual coding and routine data entry, they simultaneously create massive demand for AI orchestration, enterprise-grade governance, and complex integration architecture. “The industry is rapidly transitioning from a labor-heavy ‘effort-based’ model to a high-margin ‘outcome-based’ model,” he said.
“At current levels, the Nifty IT index is undergoing a necessary valuation reset rather than falling into a ‘value trap,'” Bolinjkar said. “The 13% fall since February 4th has largely baked in the ‘SaaSpocalypse’ fears. With dividend yields for the index now attractive at ~3% and balance sheets remaining cash-rich, the downside is increasingly protected.”
But even bulls acknowledge the pain may not be over. “We are entering a period of high divergence,” Bolinjkar warned. “Investors must distinguish between ‘AI-adapters’—companies aggressively integrating agentic workflows to improve internal margins—and ‘legacy-laggards’ still reliant on headcount growth.”
Singh sees the current phase as a painful but necessary recalibration, though he’s not ready to call a bottom. “The AI angle has definitely been blown out of proportion. People tend to jump from ‘AI can change how work is done’ to ‘AI will wipe out IT jobs tomorrow,’ which isn’t realistic. Indian IT firms are adopting AI tools themselves and selling AI-enabled services to clients, not standing still.”
However, he counsels patience over panic buying. “For long-term investors, this isn’t a time to panic but a time to be selective. Weakness offers a chance to add to high-quality IT names that have strong balance sheets and solid global client relationships. Instead of buying everything indiscriminately, it makes sense to accumulate in stages on dips and watch for clear signs of stability.”
For traders, Singh’s advice is even more cautious. “Waiting for a confirmed reversal pattern or technical support being respected before taking fresh positions can help manage risk.”
His diagnosis: “This sell-off looks like a valuation reset and sentiment dip, not a structural breakdown of the sector. Patience and selectivity matter more than ever.”
Bolinjkar offered a contrarian longer-term view for those willing to stomach what could be continued near-term pain. “Indian IT’s deep domain expertise in critical sectors like BFSI and Healthcare remains a formidable moat that standalone LLMs cannot replicate without human-in-the-loop oversight. For those with a 2-3 year horizon, this volatility represents a seasoned entry point into the next generation of AI-native services.”
The coming sessions will reveal whether the worst is over or if the real pain is yet to come.