IT stocks slump on AI anxiety, but disruption still hypothetical
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Bengaluru: The ongoing rout in IT stocks is being driven by investor fears over the second-order impact of artificial intelligence on the IT outsourcing industry, raising concerns about earnings risks for Indian IT services companies.
According to analysts and brokerage firms, the sector could face slower revenue growth and margin pressure in the coming quarters. If these risks materialise, current valuations of IT com-panies may prove unsustainable.
However, experts also point out that a significant portion of the recent sell-off appears to be driven by panic rather than evidence of actual disruption.
“It seems the stock market movement is linked to certainty versus uncertainty. Most risks being priced in at the moment are still hypothetical,” said Pareekh Jain, IT outsourcing advisor and Founder of Pareekh Jain, in a conversation with BizzBuzz.
“Investors are factoring in the possibility of agentic AI disrupting SaaS companies. If that happens, Indian IT firms could face headwinds because of their deep engagement with SaaS play-ers. This is essentially a second-order impact,” he said. Jain added that the emergence of new technology firms without legacy burdens, unlike established IT services and SaaS companies, could potentially reshape market dynamics.
However, he stressed that large-scale displacement of IT services firms by agentic AI is unlikely in the near term. “While agentic AI can technically replace certain services, enterprises will not adopt it rapidly due to scale, security and governance challenges. There will always be demand for IT services companies to manage complex enterprise IT stacks. Greater complexity often increases reliance on third-party players,” Jain said.
Recently, Mahindra Group CEO Anish Shah described the sell-off in Indian IT stocks as an “overreaction” to AI-led disruption. Mahindra Group is the promoter of Tech Mahindra. Shah also said the company views AI as a growth enabler and has already begun adapting its business model to align with emerging technologies. On Thursday, frontline IT stocks declined between 3–7 per cent amid fears that agentic AI tools could displace traditional IT services, triggering revenue shocks in the coming quarters.
So far this year, the Nifty IT Index has emerged as one of the worst-performing sectoral indices, declining nearly 10 per cent year-to-date.
Meanwhile, Citi, in a recent report, noted that while Indian IT firms have successfully navigated previous technology cycles, the current AI cycle appears fundamentally different due to its all-pervasive nature.
