Major information technology (IT) stocks finally found some relief on Tuesday after weeks of selling that wiped out a significant amount of market capitalisation.
Shares of Infosys Ltd, HCL Technologies Ltd and Tata Consultancy Services Ltd rose as much as 4% in early trade. The Nifty IT index also rose nearly 3% in early trade.
The rebound in IT stocks comes just a day after the sector witnessed a steep fall because of fear that fast-moving developments in artificial intelligence (AI) could disrupt long-established services in coding, maintenance and support.
AI HEAT ON IT STOCKS
The sell-off began when investors started worrying that tools built by companies such as Anthropic could automate large parts of the work that Indian IT firms traditionally bill for.
As those fears spread, major stocks were marked down heavily and the Nifty IT index recorded one of its steepest corrections in years. The sector had been under pressure for most of February and valuations eventually reached levels that many market participants considered excessive.
The mood changed today as traders and long-only funds stepped in. With global tech shares stabilising overnight and fresh reports hinting at possible collaboration between AI developers and IT service providers, investors turned more comfortable with the idea that the transition may be challenging but not destructive.
The belief that AI companies may work with Indian IT rather than simply replace them helped ease some of the earlier nervousness.
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the market is dealing with two strongly influential forces.
“There are two significant trends in the market, one negative and the other positive. The negative factor is the continued weakness in IT stocks triggered by the Anthropic shock. Many leading IT names have crashed between 18-26% in the last month alone. The positive factor is the FIIs turning buyers in February after a long time.”
WHAT NEXT FOR IT STOCKS?
However, he believes the selling may finally be nearing exhaustion. “The negative factor of sustained selling in IT stocks may be over and there is a possibility of some rebound in the segment,” he said.
“News of Anthropic’s Claude chatbot building partnership in software and services with IT firms indicates that there will be collaboration opportunities for Indian IT firms. If the weakness in IT stocks subsides and the segment recovers, the tailwind of FII buying can lift the markets,” he added.
While the rebound today may signal a shift in sentiment, experts caution that several layers of concern remain.
Dr Ravi Singh, Chief Research Officer at Master Capital Services Ltd, said the correction was not driven by a single shock but by a combination of global uncertainties, softer deal flow and rising anxiety about how quickly AI could influence billing models.
“The recent weakness in Indian IT stocks is not about a single blow-up, but a combination of macro worries, earnings risk and a sudden shift in the AI narrative,” he said. “The sector is still heavily dependent on the US and Europe and slower than hoped rate cuts along with cautious IT budgets are showing up in softer deal flow and delayed decisions.”
He added that investors are reacting to both the opportunity and the risk that generative AI brings. “Generative AI is clearly a long-term opportunity, but in the short run it has spooked investors who worry that automation could eat into bread and butter areas like application maintenance and support,” he said.
“The market is pricing in a bumpy transition phase before there is clear evidence that AI can be monetised at scale and not simply used to lower billing rates.”
According to Singh, the next year or two will be defined by slow but steady adjustment. “Over the next twelve to twenty four months, revenue growth may remain moderate and may largely track global GDP and enterprise IT budgets,” he said. “The deal pipeline remains healthy, but conversion timelines are longer. AI-led projects are still smaller in size but could scale once companies demonstrate clear return on investment.”
SHOULD YOU STILL BUY IT STOCKS?
Singh believes long-term investors can consider accumulating high-quality names, provided they understand the transition risk. “Long-term investors who accept the execution risk can begin to accumulate selectively in market leaders that have strong balance sheets, diversified revenue streams and demonstrable AI monetisation plans,” he said.
“Short-term investors should wait for clearer evidence of stabilisation because further downside remains plausible if downgrades continue.”
The rebound today does not erase the damage of the past month, but it signals that the panic selling that swept across the sector may finally be calming down. Investors now appear more willing to separate long-term industry changes from short-term market fear.
The picture ahead remains uncertain, but the market’s reaction today shows that confidence is no longer at rock bottom.
