The rout in Information Technology (IT) stocks deepened on Friday amid fears of AI-driven disruption with major firms’ shares slumping over 5% intraday. A buyback at lower levels offered some relief, but the Nifty IT index still fell 1.50%. Continuous selling in IT stocks, coupled with muted global cues, dented overall market sentiment, dragging the BSE Sensex and NSE Nifty down about 1.3% each.
The Sensex plunged 1,048 points to settle at 82,627 while the Nifty 50 shed 336 points to close at 25,471. Selling pressure was broad-based, with 44 of the 50 Nifty constituents ending in the red. Investors are estimated to have lost more than Rs 7 lakh crore in Friday as the overall market capitalisation of BSE-listed firms dropped to nearly ₹465.37 lakh crore from ₹472.50 lakh crore in the previous session.
Vinod Nair, Head of Research, Geojit Investments said that sentiment gains from the US–India trade deal have faded as renewed AI‑driven disruption fears weigh on risk appetite, with markets worrying that Indian IT firms dependent on labour arbitrage model may face tougher competitive pressure than their Nasdaq peers.
“This cautious tone extended across the broader market, pulling all major indices into negative territory, with most sectors closing in the red. Metal stocks saw profit‑booking amid a stronger dollar index, as reports of Russia’s return to the US‑dollar settlement system heightened expectations of potential sanctions relief and raised concerns over weaker realisations for metal companies. Realty stocks declined on the back of weak results and delayed launches,” added Nair.
After the Nasdaq’s overnight plunge of over 2%, major Asian indices fell more than 1% each on Friday. Fading hopes for Federal Reserve rate cuts and a stronger dollar index and rising US 10-year bond yields further weighed on sentiment.
Commenting on the IT stocks, Sunny Agrawal - Head of Fundamental Research at SBI Securities said that the sector has been experiencing significant pressure over the past year due to various challenges. Initially poised for recovery from growth concerns related to macroeconomic issues, tariff uncertainties, geopolitical tensions, and weak discretionary spending, the sector is now confronted with the emerging threat of rapid AI automation.
“Investors are concern that AI technologies may automate intricate tasks across different functional areas, jeopardizing the business models of conventional IT services and outsourcing firms. Additionally, competition from AI led start-up which is potentially taking market share of traditional IT companies, too keeping the sector on edge,” said Agrawal.
He believes that Indian IT firms are currently in a wait-and-watch mode, observing how these new developments unfold over the next one to two quarters. “In the short term, we anticipate that the IT sector will continue to face pressure until the implications of AI become clearer,” he added.
Swapnil Aggarwal, Director, VSRK Capital said that concerns around global demand slowdown, cautious commentary from tech companies, and uncertainty related to AI-led disruptions and job losses have triggered profit booking after recent gains.
“At present, this appears to be more of a sentiment-driven correction rather than the start of a deeper structural downturn. Domestic macro fundamentals remain relatively stable, but the market is lacking strong upward momentum, which may keep indices range-bound in the near term,” he added.
N. ArunaGiri, CEO, TrustLine Holdings said that the view that software or IT services are structurally obsolete appears overstretched, particularly in the enterprise segment which run mission critical multilocational and highly secure applications.
He added that large enterprises operate in highly complex environments characterized by Deep legacy, software stacks, Stringent regulatory environments, Multi-location and multi-country infrastructure, Mission-critical systems requiring reliability and a high level of security and governance. These environments are unlikely to transition fully to self-built AI-generated systems without expert oversight.
“Specialized IT service providers and software vendors will continue to play a critical role in integration, compliance, architecture, and large-scale transformation…This is the likely scenario that is likely to play out once the dust settles. Even if IT services companies emerge as long-term beneficiaries, growth rates may moderate and pricing power could weaken due to the inherently deflationary nature of AI-driven productivity gains,” stated ArunaGiri.