IT stocks, once seen as a major wealth creator, have given poor to negative returns in the last few years owing to prolonged recession and artificial intelligence (AI)-led disruption. In the last three years, Nifty IT has gained just 3%, while in five years it has surged 27%. Compared to this, India’s equity benchmark index NSE Nifty50 has gained 76% in five years.
Among the top names, Tata Consultancy Services (TCS) has given a negative return of 10%, Infosys a positive return of 5% and Wipro no return in five years. While shares of Tech Mahindra, HCL and Coforge have seen a good jump in the 5-year period, they have also turned highly bearish in 2026 and are trading well below their all-time high levels.
Explaining the possible reason for the downturn, Sushovon Nayak, Research Analyst, Anand Rathi Institutional Equities, stated that post the COVID-driven run-up in 2021, Indian IT entered an elongated spending recession as enterprise clients shifted focus from large transformation programs to optimizing existing technology stacks, leading to cautious discretionary spend, slower deal conversions, and a weak growth outlook that compressed valuations.
Nayak added that a deteriorating global macro environment, marked by tariff-driven trade disruptions and geopolitical uncertainty, further pushed US and European clients to defer and right-shift large IT commitments.
“The post-ChatGPT era then added a structural fear on top of the cyclical weakness, with the most visible AI spend flowing into chips and cloud infrastructure, Indian IT services began to look increasingly left out from technology spending agenda, along with revenue deflation fears that GenAI will compress the traditional IT services work of ADM and Managed Services, adding on to the the sector's de-rating well beyond just cyclical concerns,” said Nayak.
While Indian IT firms grapple with a slowdown, the crackdown has intensified lately. Shares of Infosys and TCS plunged up to 20% in a month, fueled by advances in Google-backed Anthropic’s AI plug-ins which automate tasks across functions and reignited fears of disruption to traditional software services.
Jefferies has turned cautious on India's IT services sector, warning that artificial intelligence could structurally alter business models and compress valuations. The global brokerage downgraded the TCS to Underperform and slashed the price target to Rs 2,350 (Last traded price: Rs 2,674). For Infosys, the price target was reduced to Rs 1,290 (LTP: Rs 1,328).
Sunny Agrawal, Head - Fundamental Research at SBI Securities said that at present, the sector is out of favour. “While IT companies are expected to see productivity gains through AI, the primary concern remains growth. The bigger question is ramp-up of deals which is a key for growth. The sector may continue to underperform despite having attractive valuation. Investors shall concentrate on domestic story,” said Agrawal.
He added, “We will need to wait and see how new developments progress over the next one to two quarters. We think investors shall wait for some more time before entering as price correction may not be over yet.”
Nayak, on the contrary, sees Indian IT gathering steam going ahead as the technology cycle is at the beginning of the monetization phase with Indian IT now to be the key beneficiaries of the current AI-buildout with high volume of legacy modernisation, data engineering and transformational partnership work to come the way of Indian IT players due to their role as the implementation partners and system integrators for enterprise adoption of AI at scale.
“At current levels, investors should start nibbling into select IT plays and increase allocation with every 5-7% fall in stock prices,” he added.