Indian information technology stocks came under intense pressure on Tuesday, with the Nifty IT index plunging more than 3% in early trade, extending a five-session losing streak. The sell-off reflects mounting investor anxiety that rapid advances in artificial intelligence could fundamentally disrupt the traditional outsourcing model that underpins India’s $250-billion IT services industry.

The latest trigger came from claims by US-based AI firm Anthropic that its “Claude Code” tools can sharply reduce the cost and complexity of modernising legacy software systems-work that has historically generated significant revenue for Indian IT majors. The development has reignited concerns that AI could automate core services ranging from application maintenance to system upgrades, potentially compressing pricing power and margins.

Large-cap IT companies bore the brunt of the decline. HCL Technologies dropped nearly 4% in morning trade, while Infosys fell more than 3%. Tata Consultancy Services, Tech Mahindra, and Wipro also registered steep losses, reflecting broad-based selling across the sector. Mid-tier players were not spared either, with LTIMindtree trading lower as risk aversion spread across IT portfolios.

The weakness comes amid growing global debate over whether generative AI will act as a productivity enhancer or a structural disruptor to technology services firms. For Indian companies, the stakes are particularly high because a large portion of revenue comes from managing legacy systems for global clients a segment that could shrink if automation tools dramatically reduce human effort requirements.

Brokerage actions intensified the market reaction. Jefferies recently downgraded several major IT stocks, warning that artificial intelligence could push the sector toward consulting-heavy, project-based work while reducing recurring managed services revenues. Such a shift, the brokerage argued, would increase earnings cyclicality and demand new talent models, potentially raising execution risks.

The firm downgraded Infosys and HCL Technologies to “hold” while cutting target prices sharply, and assigned “underperform” ratings to Tata Consultancy Services and LTIMindtree. Despite recent declines, Jefferies noted that downside risks could still outweigh potential upside for several stocks due to uncertain long-term growth visibility.

However, not all market participants share the same pessimism. CLSA adopted a more balanced stance, stating that fears of immediate AI disruption may be exaggerated. According to its channel checks, there has been no significant shift in client spending patterns, deal structures, or service mix so far. Instead, AI is currently being deployed as a productivity tool rather than a wholesale replacement for traditional services.

CLSA maintained selective positive views on certain IT names while acknowledging that valuations across the sector have de-rated amid persistent uncertainty. Management commentary from several companies continues to point toward a possible macro recovery in calendar year 2026, though investors remain cautious about medium-term growth prospects.

For the broader Indian market, the IT sector’s weakness has implications beyond stock prices. IT services contribute substantially to export earnings, high-quality employment, and dollar inflows. A structural slowdown could affect urban consumption trends, wage growth in the tech workforce, and India’s services trade balance.