Indian technology stocks witnessed a steep correction on February 4 after global markets reacted negatively to the launch of a new legal AI capability by Anthropic for its Claude platform. The development triggered fears that generative AI is moving beyond augmentation into the territory of replacing complex professional workflows—an area that has long formed the backbone of Indian IT services revenue.

The immediate market reaction was sharp. The Nifty IT index fell over 6 percent, marking its worst intraday performance since March 2020. Shares of INFY, LTIM, and MPHASIS dropped more than 7 percent each, reflecting broad-based anxiety across large, mid-tier, and niche IT service providers.

The selloff was not isolated to India. Wall Street had ended the previous session deeply in the red as investors reassessed how AI-led tools could intensify competition in software, legal, analytics, and data-heavy professional services.

Analysts tracking global technology trends pointed out that Anthropic’s new plug-ins allow its AI agent to automate tasks across legal documentation, sales processes, marketing workflows, and data analysis—areas where human-led IT services have historically been deployed.

Morgan Stanley analysts, in commentary cited by Bloomberg, flagged this as a sign of intensifying competition for enterprise software and services firms. The concern is not about AI assisting engineers but about AI compressing timelines for large-scale enterprise transformations that previously required multi-year engagements and large offshore teams.

This distinction is critical. For decades, Indian IT’s revenue model has relied on linear headcount growth, long-duration implementation cycles, and billable hours tied to effort. The emerging AI narrative challenges each of these pillars simultaneously.

Analysts tracking enterprise technology shifts argue that AI is beginning to execute complex migration and transformation tasks such as SAP transitions or enterprise system overhauls in weeks rather than years. If enterprises start trusting AI platforms for such high-stakes work, the dependency on large vendor teams could structurally reduce.

According to market participants, this is what investors are reacting to: not quarterly earnings risk, but the possibility that the very structure of demand may evolve faster than IT firms can reprice their services.

Ambrish Shah of Systematix Group noted that advanced AI systems could start replacing routine coding, testing, and support functions, particularly at the entry level. This has implications for both cost structures and the traditional talent pyramid model that Indian IT firms have perfected over time.

At the same time, analysts caution against equating disruption with destruction. Bhavik Joshi of INVasset PMS observed that periods of technology-led correction often coincide with inflection points where old delivery models are questioned but new ones are not yet visible in financial statements. In his view, the current correction reflects markets struggling to price how enterprise value creation is evolving.

There is also a counterpoint gaining ground. Enterprises are not necessarily reducing technology spending; rather, they may be reallocating budgets toward platforms that promise speed, predictability, and scalability. In such a scenario, incumbents with strong client relationships, domain expertise, and data access may be better placed to integrate AI into delivery rather than be displaced by it.

Siddharth Maurya of Vibhavangal Anukulakara suggested that the selloff appears sentiment-driven, with markets potentially overestimating the near-term impact of AI on revenue visibility. Over the medium term, firms that embed AI into their service stack could expand their addressable market rather than shrink it.

VK Vijayakumar of Geojit Investments added another dimension, pointing out that valuations in the IT space remain elevated. Without strong near-term earnings triggers, global risk-off sentiment and AI-led uncertainty can easily pressure the index.

For Indian markets, the episode is significant beyond a single day’s fall. IT remains a heavyweight sector in benchmark indices and a key driver of foreign institutional investor flows. A structural re-rating of the sector, even if gradual, can influence broader market sentiment.