Indian IT stocks have experienced severe selling pressure for the seventh consecutive session, with all 10 constituents on the Nifty IT index trading with losses for the week. According to CNBC TV18, the sector has lost over ₹1.2 lakh crore in market capitalisation in just the first two-and-a-half days of the week. Infosys has been particularly hard hit, down for the sixth straight session with a 4% decline today, bringing its weekly losses to over 8% and losing over ₹35,000 crore in market capitalisation. Tata Consultancy Services, India's largest IT services company, has declined for the seventh day running and lost over 4.5% during the week, shedding over ₹37,000 crore in market capitalisation. The sustained selling pressure has created a cascade effect across the entire IT sector, with Tech Mahindra, Wipro, and Coforge all losing between 5% to 6% so far this week. As per Moneycontrol, the Nifty IT index has fallen for the seventh straight session and is down more than 7 percent so far this month, marking a significant reversal after two consecutive months of buying in the sector.
The latest wave of selling has been accelerated by OpenAI's launch of GPT-6 Astra, calling it its most capable model till date. As reported by CNBC TV18, the launch prompted Nvidia CEO Jensen Huang to declare that "AGI has arrived". The AI model's capabilities include operating computers, filling online forms, updating customer records, conducting web research, analyzing data, creating websites, working with specialized scientific software and producing documents, spreadsheets and presentations. However, according to Kotak Institutional Equities, the latest releases point to three important trends: software capabilities are improving, the gap between leading models is narrowing and vendors are increasingly focused on cost efficiency and cheaper pricing. The brokerage noted that "Lower capability improvement in software-related tasks compared to certain other domains is a positive outcome for Indian IT," leaving room for more AI adoption by enterprises and creating new use cases for IT services companies. At the same time, AI models are getting cheaper and closer in capability, with Google and Meta offering significantly cheaper alternatives while Anthropic and OpenAI have been working on improving price-to-performance ratios.
The sharp fall in AI costs is creating a double-edged sword effect for Indian IT companies, as reported by Kotak Institutional Equities. While better and cheaper AI models could accelerate enterprise adoption and create new revenue opportunities, analysts fear that they also raise the risk of deflation in legacy services as more software and business processes become automated. The brokerage emphasized that "The deflation risk has not gone away. Even incremental improvements in coding and reasoning can add up as newer models are released." UBS also sees both opportunities and risks, but said it is still too early to establish whether AI-related revenue can offset the pressure on traditional IT services. According to Moneycontrol, AI revenues currently remain a small part of overall sector revenue, meaning investors cannot yet conclude that new AI-led growth will fully compensate for potential deflation in legacy services. CLSA has taken a more cautious stance, downgrading TCS, Infosys, and Tech Mahindra to Hold and Wipro and Mphasis to Underperform, while preferring mid-tier names such as Coforge and Persistent Systems.
Despite the challenges, analysts remain selective about IT stock recommendations. UBS has upgraded Tech Mahindra to Buy and raised its target price to ₹1,865 from ₹1,460, while downgrading HCLTech to Neutral from Buy and cutting Persistent Systems to Neutral citing valuation concerns. CLSA has taken a more cautious approach, downgrading large IT companies while preferring mid-tier names. The brokerage said large IT companies face AI-led deflation in legacy managed services alongside macroeconomic headwinds, although higher AI volumes could eventually offset some of that pressure by FY30. With valuations and expectations now being reassessed, the debate for Indian IT is increasingly shifting from whether AI is a threat to how quickly companies can turn AI adoption into new revenue before automation starts eating into existing businesses. As per Moneycontrol, with the latest AI model launches from Anthropic, OpenAI, Google, and Meta proving to be a double-edged sword, investors are turning cautious on IT stocks after two months of consecutive buying.
