AI Scare Sparks Indian IT Selloff; Nifty IT Plunges 6%

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AuthorKavya Nair|Published at:
AI Scare Sparks Indian IT Selloff; Nifty IT Plunges 6%
Overview

India's IT sector stocks plunged Wednesday, with the Nifty IT index falling 5.9% after AI startup Anthropic launched a productivity tool. Concerns over AI's impact on profitability drove sharp declines in Infosys, Wipro, and TCS. This selloff mirrored Wall Street's reaction, though the recent US-India trade deal provided a slight sentiment boost.

The sharp sell-off began Wednesday, February 4, 2026, as artificial intelligence startup Anthropic unveiled a new productivity tool designed for in-house legal teams. This development ignited investor fears that advanced AI capabilities could significantly erode profitability across the software industry. The Nifty IT index recorded its steepest intraday fall since April 7, 2025, shedding 5.9 per cent. Major Indian IT firms bore the brunt, with Persistent Systems Ltd. and LTIMindtree dropping over 7.5 per cent, while Infosys and Tata Consultancy Services saw declines exceeding 6 per cent. Wipro also slid approximately 6.7 per cent.

Global Echoes of the AI Selloff

The apprehension on Indian shores was a direct reflection of a broader global trend. Wall Street experienced a significant downturn on Tuesday, February 3, 2026, with the Nasdaq Composite index closing down 1.43 per cent. A basket of US software stocks tracked by Goldman Sachs Group Inc. plunged 6 per cent, marking its most substantial one-day decline since April's tariff-driven selloff, according to Bloomberg. Asian markets also followed suit, with legal software and data services firms facing considerable losses.

Navigating the Trade Winds

Despite the immediate AI-induced pressure, not all elements were negative for India's technology sector. The recently concluded trade deal with the United States offered a crucial counterbalance. While IT services and software exports are not directly subject to tariffs, the improved trade relationship with the US – a market accounting for over 60 per cent of the sector's revenue – signals enhanced strategic alignment and a reduction in geopolitical overhang, ICICI Securities noted. The brokerage firm views the trade deal's impact as sentimentally positive, with visa regulations, tech budgets, and data governance remaining key catalysts for IT services.

Budget Boost for Data Centers

Further optimism stemmed from the 2026 Union Budget. Proposals to stimulate investment in data centers include a tax holiday extending until 2047 for foreign companies offering cloud services globally from Indian data centers. This initiative aims to bolster infrastructure supporting the tech industry's future growth, potentially creating new avenues for service providers.

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