Indian IT stocks extended their decline for a third consecutive trading session on February 6 as investors reacted sharply to growing evidence that advances in generative AI may begin to disrupt the core revenue streams of large outsourcing and application services firms.

The Nifty IT index fell around 3 percent in early trade to 35,457.80 and has now declined nearly 9 percent since Anthropic unveiled new capabilities for its Claude Cowork AI agent last week. The sustained fall has put the sector on course for its worst weekly performance in more than four months.

The immediate trigger for the selloff was a note from Jefferies, which highlighted how Anthropic’s new AI plug-ins, especially those tailored for legal, sales, marketing and data analysis workflows, signal a structural threat to application services-a segment that contributes between 40 and 70 percent of revenue for most Indian IT services companies.

Jefferies warned of “more pain ahead” and noted that AI-led deflation in legacy service revenues could outweigh incremental opportunities from new AI-driven projects over the next one to two years.

Stocks across the sector reflected this anxiety. Coforge declined more than 4 percent, while Persistent Systems and LTIMindtree were down around 3 percent. Mphasis and Tech Mahindra slipped over 2 percent each. Heavyweights Tata Consultancy Services and Infosys fell nearly 2 percent, while Wipro and HCLTech were down about 1 percent each.

The market reaction indicates that investors are no longer treating AI purely as a productivity enabler for IT firms but are beginning to price in the possibility that automation may substitute parts of their traditional service offerings.

Anthropic’s latest upgrade allows its AI agent to perform workflow automation across professional functions that historically required significant human intervention — areas where Indian IT companies have built multi-billion-dollar service franchises over decades. This includes application management, testing, support services, data processing, and consulting-heavy workflows.

Morgan Stanley analysts, quoted in global media reports, interpreted the development as a sign of intensifying competition for IT and software service providers. Market strategists in the US also pointed to a broad selloff across software names globally, reinforcing the view that this is not an India-specific reaction but part of a larger re-rating of technology services firms.

Ajit Mishra of Religare Broking noted that while the sector’s fundamentals remain intact for now, sentiment is turning cautious as markets attempt to gauge the real impact on demand, pricing power and margins.

What makes this development significant is the nature of the threat. Earlier AI waves were seen as tools that would improve efficiency for IT firms, allowing them to deliver more with fewer resources. The current generation of AI tools, however, appears capable of executing tasks that were previously outsourced to IT service vendors.

This creates a potential deflationary cycle where clients may demand lower billing rates, reduce outsourced workloads, or deploy AI agents internally for tasks that were earlier contracted out.

For Indian IT companies, application services, maintenance contracts, and long-duration support engagements have been stable revenue anchors with high visibility. If AI reduces the effort required in these engagements, the billing model itself may come under pressure.

Indian IT services form a significant weight in benchmark indices and are key contributors to export earnings, institutional portfolios, and retail participation. A structural downgrade in growth expectations for the sector can have broader implications for market sentiment.

Unlike previous IT corrections triggered by US recession fears or client budget cuts, this episode is being driven by technology-led disruption risk-a more structural concern rather than a cyclical one.