AI Is Disrupting IT — Should You Buy IT Stocks or Switch to Mutual Funds?

The IT industry in India has always been favoured by investors, but times have changed and it is facing its greatest challenges in decades. In February 2026, the Nifty IT index fell by almost 20%. This is the worst monthly change since the 2008 global recession. Investors fear the AI disruption of Indian IT stocks and billions in market value are at risk. New tools from companies like Anthropic automate the tasks that support India's $315 billion outsourcing IT sector.

Is this the end of IT services or is this an overreaction to the problem? Should investors flock to IT mutual funds as opposed to direct stocks or should they buy IT stocks in 2026? In this guide, we break it down with data, expert views, and actionable insights.

AI Disruption Impact Analysis on Indian IT Stocks

Artificial Intelligence is evolving into something that is disrupting the core of the IT business model in India. For decades, companies like TCS, Infosys, Wipro, and HCL Technologies depended on services like application development and maintenance, and business process outsourcing. However, now agentic AI can complete multi-step business tasks independently.

Disruptive AI technology was introduced in 2026 when Anthropic launched advanced plugins on its Claude Cowork AI platform. These plugins perform code generation, contract evaluation, compliance checks, and role systems integrations that previously required large offshore teams. Jefferies and Motilal Oswal Brokerages stated that up to 12% of the industry's revenue could completely disappear within the next four years.

However, forecasts show that the Indian IT industry will cross the $315 billion mark in FY2026 at a growth rate of 6.1%. ($10 to $12 billion) is the already established revenue range of AI-based services. Indian IT companies have partnered with Anthropic and OpenAI to assist with the “AI Deployment and Scaling” process. As former RBI governor Raghuram Rajan stated, “AI will not derail but disrupt India’s services story.” With the integration of AI into business processes, there will be a need to reskill and manage the AI systems, which will create even more job opportunities.

However, the market has assumed the worst of the situation. Foreign investors have recently sold more than $8.5 billion of IT stocks, causing the steep sell-off.

The Nifty IT Crash February 2026: What Really Happened?

February 2026 will be remembered as a bloodbath for IT investors. The Nifty IT index registered a 19 - 21% decline for the month, the largest drop in 17-23 years for the index. The largest constituents of the index lost a combined $60 - 68 billion in market capitalisation.

(Reddit)

The triggers were clear.

Anthropic's announcements of agentic AI 

• Global sell-off in software (the SaaS stocks also crashed)
• Jefferies downgrades (target prices cut by up to 33%) 
• Earnings fears as clients shorten project timelines 

Infosys, TCS, and Wipro were the largest losers, with declines of -21%, -19%, and -24%, respectively. The mid-caps were also not spared. The sector was trading at a forward PE of 14-21x, which is a substantial discount to its historical premium of 30-40x over the broader markets.

This was not just noise. It represented real structural issues caused by the Anthropic AI impact on IT services. Despite this, many analysts referred to the impact of Anthropic AI on IT services as overblown panic. They view the technological fears as providing a historical buying opportunity for investors.

Anthropic AI Impact on IT Services: Threat or Opportunity?

Anthropic's Claude is not just another chatbot. Claude's AI Agent Plugins can autonomously connect to and integrate with enterprise systems. Claude's AI Agent Plugins impact high-margin application services, which make up between 40 and 70% of the revenues of most IT firms. Clients are now able to automate services that were previously only able to be outsourced, thereby reducing billable hours.  

The Indian IT behemoths were initially dismissive. Executives from TCS, Cognizant, and Wipro described the impending threat as "overblown." They believed that their clients would always need human employees for complicated deployments, as well as for compliance and custom work. Several companies announced partnerships with Anthropic to co-create products.  

The impact, however, is genuine. In early 2026, over 30,000 layoffs occurred in the technology sector globally, and Indian firms were reducing their workforce even as revenues increased. The so-called "talent mismatch" is real. Demand for AI/ML positions increased by 39%. Demand for coding as a practice has declined.  

Several IT thought leaders envision a hybrid future. AI will take over routine work, allowing people to engage in higher-level tasks such as AI strategy, AI ethics, and subject matter deep-dive expertise. Due to the cost arbitrage of English-speaking workers, Indian IT is well placed to be the "AI implementation backbone" for global corporations.  

IT Mutual Funds vs Direct Stocks: Risk vs Reward in Volatile Times

As chaos escalates, the debate over IT mutual funds versus direct stocks comes to the forefront. If you delve deeply into the IT sector, direct IT stocks can be advantageous if you can predict the companies that will be the most successful at the fastest pivot to AI, such as Persistent Systems, Coforge, or LTIMindtree, as they have all demonstrated that they are the most likely candidates. 

You can control your own portfolio, as you can buy more stocks when the price is low. That being said, while the potential reward is present, the risk is higher, as these stocks carry the greatest concentration risk. It is almost certain that one poor quarter or an adverse AI headline can cause the price of that stock to drop by as much as 10-20%. This was demonstrated in February 2026 when a negative AI headline had a notable impact.

For IT mutual funds, you gain almost instant diversification into anywhere from 20-50 tech stocks, including software and hardware, as well as newly integrated AI stocks and companies. The less active mutual funds and the more active mutual funds average about 0.9-1.1% in terms of the expense ratio of the fund, and the mutual funds also can help prevent your portfolio from experiencing excessive volatility as the sector undergoes rapid changes.

If you're looking at 2026 as your ideal target timeframe, you will need to hold a greater number of specific direct stocks. For nearly all other mutual fund investors, IT mutual funds will be the best and easiest option, particularly for those whose total portfolio value is less than 50 lakh, as this will be the least stressful option. 

Best Tech Mutual Funds For 2026

February's market crash highlighted the importance of tech mutual funds in growth portfolios. With adaptability to AI themes, the following funds are the best tech mutual funds for 2026, based on long-term performance, assets under management (AUM), and adaptability to AI trends (all data as of February 2026).  

• SBI Technology Opportunities Fund: A consistent performer that protects against downside risk while maintaining a focus on quality tech. Five-year returns hover around 14%.
• Franklin India Technology Fund: Ideal for exposure solely to pure-play IT. One of the oldest funds, with better stock selection than the competition, particularly in software and digital themes.
• ICICI Prudential Technology Fund: More aggressive in mid-cap investing. Volatility is expected, but so is the potential for higher returns in all recovery periods.
• HDFC Technology Fund: Increasing popularity for investments in tech diversifications, and gaining traction for investments in cloud and semiconductors.  
• Nippon India Nifty IT Index Fund or Motilal Oswal Digital India Fund: Ideal for investors looking for passive and low exposure to the index as a market benchmark.  

These funds did lose some value in the previous calendar year, but 3 and 5-year returns remain intact. Without the headache of stock picking, these funds will both give exposure to disruptive pure-plays and legacy tech giants pivoting to AI. 

Conclusion

The story of AI disrupting Indian IT equities took center stage in February 2026, which led to the February 2026 Nifty IT meltdown and made all investors reevaluate their tech allocation. However, history demonstrates that technological revolutions only reward adopters and produce more wealth and jobs than they eliminate.

The optimal risk-adjusted course of action for the majority of investors is to convert a part of their direct holdings to IT mutual funds rather than direct stocks. The top tech mutual funds for 2026 offer professionally managed, diversified exposure to both the opportunity and the disruption.

Your risk tolerance, time horizon, and belief in Indian IT's capacity for self-reinvention will determine whether you choose to purchase or sell IT stocks in 2026.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.