AI Shock Jolts IT Stocks

India’s technology stocks came under intense pressure on Tuesday as fresh fears around Artificial Intelligence (AI) disruption rattled investor confidence. The trigger this time was an update from US-based AI firm Anthropic, which said its Claude Code tool can significantly automate the modernisation of legacy systems built on COBOL, a programming language that still powers critical global infrastructure.

The sell-off pushed the Nifty IT index to multi-month lows, extending what has already been a difficult year for the sector.

Why Did IT Stocks Fall So Sharply?

Heavyweights such as Tata Consultancy Services, Infosys, HCL Technologies and Wipro share prices declined between 2% and 5% in early trade. Mid-tier firms, including Persistent Systems and Mphasis, also saw sharp cuts.

By late morning, the Nifty IT index had slipped as much as 3–4%, touching levels not seen in nearly two years. The broader weakness followed similar pressure in US markets overnight, where IBM shares tumbled 13% in a single session.

At the heart of the anxiety is Anthropic’s claim that its updated Claude Code tool can automate much of the exploration and analysis involved in COBOL modernisation. This is significant because maintaining and upgrading COBOL-based systems has long been a steady revenue stream for global IT services firms and IBM’s mainframe business.

COBOL, short for Common Business-Oriented Language, was developed in the late 1950s and remains deeply embedded in banking, airline bookings, retail transactions, and government systems. Anthropic estimates that about 95% of ATM transactions in the United States still rely on COBOL. With hundreds of billions of lines of COBOL code running daily, the potential for AI-driven automation is vast.

Is AI Threatening The Traditional IT Services Model?

The bigger concern for investors goes beyond one product update. Analysts fear that AI tools could permanently change how IT services are delivered, priced, and scaled.

Brokerage firm Jefferies downgraded several Indian IT majors, cutting ratings on TCS to underperform and trimming price targets across the board. Infosys and HCL Technologies were moved to hold, while Wipro retained an underperform rating. The brokerage also reduced earnings estimates and flagged structural shifts in the business model due to AI-led efficiencies.

A separate research report warned that as the marginal cost of AI coding agents falls, potentially to the cost of electricity, clients may rethink outsourcing contracts. India’s IT services industry, which contributes over $200 billion annually and plays a key role in financing the country’s trade account surplus and the offset that finances its goods trade deficit, has historically thrived on cost arbitrage. That advantage could narrow if AI tools sharply reduce the need for large coding teams.

US-listed American Depositary Receipts (ADRs) of Indian IT firms also fell, signalling global investor nervousness. For companies that derive a large share of revenue from North America, this external sentiment matters.

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Is There Any Support Or Recovery In Sight?

Despite all this negativity, some strategists do sense some technical support for the market. Analysts note that the NIFTY IT index is already showing some oversold levels, and immediate support levels for this index are seen around the levels of 29,900-30,000.

Also, some strategists note that this phase may actually be the bottom for this growth cycle, and hence, there may be some kind of recovery seen towards the later part of FY27 and FY28, when AI services may actually move from experimentation to implementation.

So, for now, uncertainty prevails.

Between AI disruption, global tech volatility and broader macro risks, investors are questioning whether the sector’s traditional strengths can hold in a world where automation keeps getting smarter and cheaper.

Sources

Economic Times

Financial Express

Times of India

Business Standard