Why IT stocks keeps falling? Reason and Detail Anaysis!

The demand for IT services has propelled the growth of the Indian IT industry, which is being affected even before the start of the year. The IT stocks have taken a beating and have dragged the Nifty IT index to almost record lows, which has led to numerous reports of the IT stocks crash in India. TCS, Infosys, HCL Tech, and Wipro have seen double-digit declines, and the sector as a whole has lost several billion dollars in market capitalisation in just the month of February.  

This is not just a routine correction. Perfect storms of the global technology slowdown, AI-disruption-based fears, and IT earnings slowdown are the trifecta causes of this rout. In this IT sector analysis of 2026, we explain a Nifty IT correction, identify and explain the resulting phenomena, assess the widespread IT sector correction, and pursue the future IT sector correction.

Current Feedback Loop: How Bad is the Drop in Nifty IT?  

By the middle of February 2026, the Nifty IT index was at a 12.6% decrease for the entire 2025 fiscal year. From the start of the year, this Nifty IT index has lost 13-15%. The Nifty IT index is experiencing record lows. A decrease of 8.2% within a week is the biggest change in 10 months.  

It's an even worse picture when looking at individual stocks. The last few sessions encountered a range of 15-20% declines for TCS and Infosys, and daily declines of 6% are not uncommon. In February 2026, the entire sector recorded a decrease of $50 billion (more than ₹4 lakh crore) in market capitalisation. The Nifty 50 and other market benchmarks recorded a decrease in market capitalisation as they pulled the market caps down.  

 

 

The story of tech stocks crashing has affected many economies, and for the IT sector, mutual funds have estimated losses in excess of (more than) ₹50,000 crore for 2023. This sell-off affected all market caps, not just the large ones, but also the mid ones, as noted in the cases of Tech Mahindra, Wipro, and Persistent Systems.

Reason 1: Fear of AI Disruption is Cause Number 1 of Plummeting IT Stock Prices  

The most significant of the IT stocks falling is the anxiety over generative AI fundamentally changing the industry’s core business model.

A cause of this immediate concern was an event in early February 2026 when AI startup Anthropic introduced advanced plugins for its Claude Cowork tool. These industry-specific AI agents (legal, finance, sales, marketing, and data analysis) can autonomously write code, fix bugs, deploy systems, reorganize files, and perform advanced workflow tasks from start to finish more quickly than any team could.

This is specifically an issue for the Indian IT giants because it is directly:

- Application Development & Maintenance (ADM) and testing, where the industry derives nearly a third of its revenues, are the most vulnerable.

- Analysts predict generative AI will impact 25-40% of routinized and headcount-determined tasks. 

- There is a trend of clients wanting more outcome-based pricing instead of “body shopping” (billing by the hour or headcount).

Investors are increasingly worried that AI will allow for projects to be completed in a significantly shorter time frame than before. What once took months will now only take a few weeks. As a result, large offshore staffing firms will not be necessary. This type of concern has resulted in a complete re-evaluation of the entire sector. Analysts from firms such as Motilal Oswal and Jefferies have pointed out that AI-centric companies will further diminish the already limited profit margins from outsourcing.

The panic extended to the rest of the world. North American and European revenue-dependent Indian IT exporters were affected by the sudden dip in the US software and data stock market (Thomson Reuters, RELX, FactSet).

Reason 2: Global Tech Slowdown and Weak Enterprise Spending

The global tech slowdown has made domestic problems even worse. Due to fears of further AI disruptions and questions surrounding the value gained from the massive investments made in AI infrastructure, the US tech giants and software firms have suffered their own sell-offs.

The level of sensitivity that Indian IT firms have to US corporate spending is remarkable. Discretionary budgets for technology are the foundation of outsourcing, and when American companies spend less, the budgets for technology projects are postponed or removed entirely.

To make matters worse, the employment data from the US in January 2026 were better than anticipated. This data illustrated strong job growth as well as a small decrease in the level of unemployment. This data created a lack of expectation surrounding the Federal Reserve making cuts to interest rates. Companies are less willing to make large investments in technology when interest rates remain high for longer.

Industry analysts have noted that Indian IT companies have been experiencing a decrease in deal-making opportunities, followed by a decrease in revenue for FY27. Due to the global customers' decision-making concerns, most brokerage houses have lost their upward prediction on earnings.

Reason 3: Persistent IT Earnings Slowdown

Before the last rout, the IT earnings slowdown had been impacting the sector for a considerable time.

Most companies have provided FY26 guidance in the low single digits for the third time in a row after a period of post-pandemic growth. Revenue growth ranged between 4% and 6%, which is unsatisfactory as the 2010s had growth in the double digits.

This trend has been noted to have a variety of causes, which include the following:

- Due to the macroeconomic challenges, client expenditure is more cautious.

- High attrition results in more cautious recruitment.

- Due to wage inflation and currency fluctuations, the margins have been squeezed.

The combination of the new in AI, along with the low-earning momentum, is driving investors to price in even slower future growth.

 

 

IT Sector Analysis 2026: Short-Term Pain or Structural Reset?

The decline of Nifty IT is significant; however, this IT sector analysis 2026 shows a more mathematically accurate analysis.

Bearish View (Current Market Sentiment)

Nifty IT's valuations and earnings decline predictions have come down a lot. Nifty IT predictions 2025 earnings have dropped as TCS and Infosys stocks seem to think they will only achieve 4-5% long-term revenue growth instead of the usual 7-8% historical average. Some analysts believe traditional players will lose their market share to AI-first players if they do not adapt quickly.

Bullish Counter-Arguments

Some analysts believe there will be a recovery, as travesty predictions look as if they are blown out of the water. Indian IT firms, as noted by JPMorgan, are playing the role of a "plumber" as they will be the ones installing and fixing new and complex AI systems. There are even new revenue opportunities opening up, such as:

- AI consulting and implementation.

- Generative AI-driven deals.

- Data cloud, cybersecurity, and sovereignty.

HDFC Securities and a few other analysts estimate the recovery due to the demand for AI services will be recovering post 2025; the demand for AI services will spike the recovery earlier. Gartner estimates the overall IT spend in India will be 176 billion dollars by 2026 due to the demand for AI infrastructure and software.

In the budget for 2026-27, there will be an increase in safe-haven thresholds, and there will be a budget for data centre and semiconductor subsidies.

Due to the current valuations, long-term investors now have the opportunity to enter as the market has settled.

Broader Market Impact and Investor Implications

The tech stock crash in India has a broader impact. IT is a major employer and a significant contributor to services exports. If it remains weak for a long time, it could impact hiring, real estate in tech hubs, and overall market sentiment.

For investors:

- Short-term: Until Q4 FY26 earnings, high levels of uncertainty will continue from a lack of clarity on AI deal wins and revenue visibility.

- Medium-term: Those that manage to pivot to AI-led offerings first, as these will recover faster.

- Long-term: The sector is changing fundamentally but not collapsing. The strongest will prevail as it has always done in previous major tech transformations (Y2K, cloud adoption).

Key will be diversification, especially not being overexposed to pure-play legacy outsourcing and instead prioritising companies with real AI capability and diversified verticals.

 

 

Conclusion: The IT Stocks Falling Phase IT Stopped in 2026

IT stocks falling and Nifty IT decline is a result of a very powerful combination of fears of AI disruption, slowdown of technology across the globe, and slowing earnings in IT. The sell-off triggered by Anthropic has evoked a harsh reality regarding traditional outsourcing.

History suggests that every transition in technology results in both disruption and opportunity – as IT sector analysis 2026 indicates. Indian IT firms have reinvented themselves before – from Y2K to cloud to digital transformation.

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.