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If you have been tracking the Indian stock market lately, you might have come across a blood bath in the technology sector. Leading IT companies like TCS, Infosys, and Wipro have faced significant selling pressure. This has left many retail investors wondering what went wrong. The primary reason behind this shift is not a traditional financial crisis, but rather a technological one. To be specific, the rapid rise of Anthropic AI and its advanced models like Claude has sparked a massive debate about the future of the outsourcing industry.
In this blog, we will delve deep into the reasons for Indian IT stocks falling, how AI automation is challenging age-old business models, and what the future holds for the backbone of India’s service economy.
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The Sudden Shift: Why the Panic?
For decades, the Indian IT sector has been the “safe haven” for investors. It was built on a simple, reliable formula: Manpower + Time = Revenue. For example, when a global bank required a new software system, they hired an Indian firm that deployed thousands of engineers to write, test, and maintain the code.
However, in early 2026, the narrative changed. The launch of advanced agentic tools by Anthropic – specifically Claude Cowork – sent shockwaves through Dalal Street. These tools are no longer just “chatbots” that answer questions. On the other hand, they are “digital workers” with the capability of executing multi-step professional tasks, writing production-level code, and automating software testing with minimal human intervention.
This technological leap led to a sharp correction, with the Nifty IT index seeing its worst single-day fall in years. In just a matter of days, the market value of Indian tech giants nosedived by nearly ₹2 lakh crore. The reason for Indian IT stocks falling is simple: investors are worried that the “billable hours” model is becoming obsolete.
1. The Death of the ‘Time and Material’ Model
The biggest threat posed by Anthropic AI is to the traditional Time and Material (T&M) billing model. Currently, Indian IT firms earn money based on the number of people they assign to a project and the hours they work.
- The AI Impact: If an AI agent like Claude can perform a task in 15 minutes that previously took a human engineer 4 hours, the client will no longer want to pay for those 4 hours of human laboUr.
- Revenue Deflation: This leads to “revenue deflation.” Even if the IT company is more productive, they might earn less money because they are using fewer people. This uncertainty about future earnings is a major reason for Indian IT stocks falling.
2. Automation of Routine Tasks
A significant portion of Indian IT revenue comes from “run-the-business” services—tasks like software maintenance, manual testing, and basic data entry.
- Anthropic’s Claude has shown remarkable proficiency in these areas. It can scan millions of lines of code, find bugs, and even suggest fixes in seconds.
- Disruption of Junior Roles: Many entry-level jobs in the IT sector involve these repetitive tasks. As AI takes over, the need for massive “bench strength” and large-scale campus hiring is decreasing, leading to a structural reset in how these companies operate.
3. Global Client Caution and Spending Cuts
Indian IT companies depend heavily on the US and Europe for their revenue (often over 80%). When US tech giants and start-ups begin adopting Anthropic’s AI solutions to cut costs, they naturally reduce their spending on traditional outsourcing.
- Discretionary Spending: Many global clients are pausing “discretionary” projects—new software builds that aren’t absolutely necessary—to figure out how they can use AI to build them cheaper later.
- Macro Pressures: Combined with high interest rates in the US and global economic uncertainty, this “wait and watch” approach by clients has led to lower revenue guidance from Indian IT management, contributing to Indian IT stocks falling.
4. Valuation Reset: Reality vs. Hype
For years, Indian IT stocks traded at “premium” valuations. Investors were willing to pay more because the growth was predictable.
- The Shift: Now that AI has introduced “unpredictability,” the market is recalculating the value of these stocks. This isn’t necessarily a sign that the companies are failing, but rather that they are being re-priced for a slower-growth, higher-risk era.
- Forward-Looking Markets: Stock markets don’t react to what is happening today; they react to what might happen three years from now. The fear that AI might eat into 20-30% of traditional revenue is being priced in today.
How Did Indian IT Sector Stocks React?
1: What is a stock?
Since the last few days, the Indian IT sector stocks have been bleeding heavily that has resulted in a massive sell off. It has been due to the rising fears that artificial intelligence (AI) tools and models will make a dent into the basic revenue model of the technology sector.
Post the introduction of the tool by Anthropic PBC, the index tracking Indian IT sector stocks including Tata Consultancy Services Ltd. and Infosys Ltd. has lost a whopping $56 billion in market capitalization. The massive sell off in Indian technology stocks has been mainly witnessed across Asia. It is to be noted that this is a region whose strong hardware manufacturing base is still considered as vital for the broader artificial intelligence ecosystem. Since Anthropic PBC released their announcement earlier this month, there was a decline of nearly 15% in the NSE Nifty IT Index. The most worrying part is that it has been the steepest fall since March 2020.
What Strategists have to Say about Indian IT Companies
The concerns about Indian IT companies may be exaggerated, says strategists at HSBC Holdings Plc and JPMorgan Chase & Co. According to them, it would be beneficial for the Indian IT companies as more enterprises look for assistance in adopting and embedding AI solutions within their operations. Now let’s go through a Bloomberg analysis that has a piece of advice for the investors who remain positive about India’s IT services sector. Bloomberg opines that the recent ‘AI scare trade’ has opened an opportunity to accumulate stocks of companies which are considered as capable of emerging strong amid pessimistic forecasts about the future of the IT industry.
PPFAS Mutual Fund, a $17 billion fund house, states that the IT industry has the flexibility to adjust effectively in line with evolving technological demands. Raunak Onkar, research head and fund manager at PPFAS Mutual Fund is of the opinion that whenever a major technological change takes place, IT firms have historically adapted by upgrading skills and aligning services according to the client requirements. Moreover, Bloomberg says that in the last month PPFAS has increased its exposure to Indian software companies.
How are Indian IT Giants Responding?
If you think that it’s all doom and gloom, you are wrong. While Indian IT stocks falling suggests a crisis, the companies themselves are not sitting idle. They are fighting back to survive:
- AI Partnerships: Companies like Infosys and TCS have already announced major partnerships with Anthropic and OpenAI. They are integrating Claude into their own platforms (like Infosys Topaz) to offer “AI-first” services. In addition to that, Infosys announced a major collaboration with Anthropic on 17th February. It was regarding developing and delivering advanced artificial intelligence (AI) solutions for companies operating in various industries such as telecommunications, financial services, manufacturing, and software development.
- Upskilling at Scale: Millions of Indian engineers are getting training in prompt engineering, AI ethics, and machine learning. The goal is to move from “writing code” to “supervising AI that writes code.”
- Outcome-Based Models: Firms are moving away from billing by the hour and toward “outcome-based” contracts. To keep it simple, the client pays for the result (e.g., a successful software launch) rather than the effort.
Key Takeaways for Investors
- Structural Change: The decline is not a temporary dip; it is a structural reset. The industry is moving from being “labour-intensive” to “intellectual property-intensive.”
- Survival of the Fittest: Not all IT companies will survive this transition. Those that adapt quickly to AI consulting and high-end engineering will likely recover, while those stuck in low-end maintenance may struggle.
- Valuation Matters: Watch for stocks that have corrected enough to offer a “margin of safety.” The fundamental strength of Indian IT—its massive talent pool and deep client relationships—remains a long-term asset.
- Volatility is the New Normal: Expect more fluctuations as new AI models are released. Every update from Anthropic or OpenAI will likely trigger a reaction in the Indian markets.
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Know moreParting Words
Hope the blog clears the air about why Indian IT stocks are falling amid the rise of Anthropic AI. If you are someone who is quite optimistic about the future of the Indian IT industry, then it would be a wise move to invest in the stocks of Indian IT companies with enormous potential. Having said that, it is quite essential to have an expert mentor to guide you on stock market investing.
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Know moreFrequently Asked Questions
Why exactly is Anthropic AI a threat to Indian IT?
Anthropic’s models, like Claude, can automate coding, testing, and documentation. This reduces the need for large human teams, which is the core revenue model for Indian IT companies.
Are Indian IT stocks falling because of bad quarterly results?
Not necessarily as most companies are still profitable. The fall is driven by “valuation compression” i.e. investors are worried about future growth and the long-term sustainability of the outsourcing model.
Will AI lead to mass layoffs in the Indian IT sector?
While bulk hiring for junior roles has slowed down, experts are of the opinion that AI will reshape jobs rather than eliminate them. The demand for “AI-skilled” professionals is actually increasing.
Is this the right time to buy IT stocks?
It depends on your horizon. While valuations are becoming more attractive, the sector may face volatility until companies prove they can successfully monetize AI.
Which Indian IT companies are most affected?
Companies heavily dependent on low-end maintenance and manual testing (T&M models) are most at risk. Those pivoting to AI consulting are better positioned.
Can Indian IT companies compete with Anthropic?
They are not trying to build competing AI models. Instead, they are becoming “integrators”—helping global businesses implement and manage tools like Claude in complex environments.
How long will this downward trend continue?
The trend may stabilize once there is clarity on how IT firms are changing their billing models and how much revenue they can generate from new AI-led projects.
