In at the moment’s Finshots, we break down the Indian IT selloff and what this implies for you as an investor.
The Story
Over the previous 12 months, the Nifty IT index has fallen 21%. And virtually 95% of that fall occurred in simply the final one month. In truth, that’s its worst drop in 23 years.
To provide you with a way of scale, corporations within the NIFTY IT index collectively misplaced over ₹6 lakh crore in market worth in a single month. And except you’ve been residing below a rock, you in all probability know why.
One phrase. Anthropic.
In early February 2026, it launched a set of “agentic” AI instruments powered by its Claude mannequin. These are instruments that not simply aid you write just a few traces of code however may also deal with complete engineering duties on their very own — writing code, testing it, fixing errors, deploying it, and even monitoring efficiency after launch.
One good instance is Claude Code. It can work with outdated programming languages like COBOL (Common Business Oriented Language), a 60-year-old system nonetheless utilized in banking. It can scan huge codebases, perceive how every little thing connects, doc it, and even convert it into fashionable languages like Java or Python.
Put merely, as a substitute of telling a developer “Hey, code this feature”, you inform the AI, “Build, test, deploy and maintain this entire system”, and it does a lot of the work with minimal supervision.
And that sort of scared buyers as a result of these are precisely the sorts of companies Indian IT corporations have historically billed its world purchasers for. For many years, these purchasers got here to Indian corporations as a result of we had giant groups of engineers who might customise software program, take a look at it, keep it, repair bugs, and run assist operations — all at decrease prices.
Besides, software upkeep and small upgrades comparable to routine fixes and updates, have traditionally contributed near half of revenues for a lot of corporations. And these are exactly the duties AI now claims it might automate. What as soon as required years and “armies of consultants” can now occur in months.
And naturally, buyers panicked. If US purchasers, who kind the majority of Indian IT revenues, begin considering, “Why pay for a 50-member team when AI can do this cheaper and faster?”, that hits the core enterprise mannequin.
And that explains why Indian IT shares skilled such a pointy sell-off.
But is that this panic totally justified, you ask?
Well, first issues first. It’s true that agentic AI can damage Indian IT corporations. For context, earlier, giant contracts signed by Indian IT corporations often lasted round 5 years. When purchasers renewed them, corporations would supply reductions of about 15–20%. That was regular. But now, with AI promising increased automation and decrease prices, purchasers are asking for steeper reductions — nearer to twenty–30%. That places stress on each revenues and margins, which signifies that within the quick time period, revenues could slow to round 6–7% annual development.
But that’s simply the short-term image.
When you’re wanting on the sector as an investor, the larger query is what occurs in the long term.
And right here’s the place issues get fascinating. The precise floor actuality appears fairly totally different from the panic within the markets. Investors appear to be reacting as if AI will utterly wipe out Indian IT corporations in just a few years.
But is that real looking?
Manish Sonthalia, Director and Chief Investment Officer at Emkay Investment Managers, shared a easy instance with The Economic Times. A couple of years in the past, when electrical autos (EVs) turned the subsequent large factor, markets virtually wrote off conventional fuel-based autos or ICE (inside combustion engine) vehicles. The assumption was that they’d quickly turn into out of date. But that didn’t occur. In truth, shares of corporations linked to ICE autos, together with auto producers and part makers, went on to rally three to 4 occasions.
This merely tells you ways markets typically overreact to disruption. And actuality typically seems to be extra balanced than the preliminary worry. The AI impact on Indian IT might be very related.
Just as a result of agentic AI has arrived, it doesn’t routinely imply Indian IT or SaaS (Software as a Service) corporations will turn into out of date. If somebody believes that, they in all probability haven’t spent a lot time working inside enterprise IT. And that’s not us saying it. That’s Bernard Golden, CEO of Navica, a US-based tech consulting and funding agency.
According to him, positive, AI makes coding simpler. But writing code is just a small a part of constructing actual enterprise software program. Business software program isn’t simply traces of code. It includes business information, regulatory compliance, safety checks, authorized contracts, customisation for big purchasers, integrations with dozens of different methods, ongoing upgrades, and long-term upkeep. There are gross sales groups, assist desks, and consultants who assist purchasers throughout international locations.
Along with software program, giant corporations additionally purchase reliability and accountability. This signifies that they want distributors who can function in 20 international locations, present native assist, deal with advanced contracts, and take obligation if one thing goes fallacious. An inside IT workforce can’t merely replicate all of that simply because AI can generate code sooner.
Golden additionally factors out one thing actually fascinating. In the previous, many corporations tried constructing their very own methods considering it will be cheaper or extra environment friendly. But most underestimated the complexity and failed. And ultimately, they went again to established distributors.
So writing obituaries for Indian IT corporations might sound a bit untimely.
And that might provide you with a very good cause to have a look at the brighter facet of this in the long run.
See, presently practically 80% of enterprise IT spending goes in the direction of upkeep and solely a small portion goes in the direction of actual innovation. But if AI reduces upkeep prices, corporations gained’t abruptly slash their total tech budgets. That’s as a result of in giant organisations, as soon as you chop a finances, it’s very onerous to get it elevated once more. So most corporations desire to maintain the finances intact.
That means the identical finances, however extra room for innovation.
In truth, AI might even scale back the dangers that include innovation. Take a financial institution that also runs on decades-old code written by engineers who’ve lengthy retired. Moving that system to fashionable software program is dangerous and costly. But if AI can perceive outdated code, translate it, take a look at it and scale back errors, the danger falls sharply. That’s not a risk. That’s a chance, no?
So how do you have to, as an investor, learn into all this?
Well, one choice is to observe the herd. Sell now, and fear about AI later. Many overseas buyers have completed precisely that by shifting cash into “AI infrastructure” themes like chips, energy and home cyclical shares.
But for long-term buyers, that might not be the neatest transfer.
Now, it’s true that the outdated mannequin — billing purchasers for big groups and lengthy hours, might see stress. Lower-end, people-heavy work might face slower development over the subsequent 3–5 years. But Indian IT corporations have tailored earlier than. They moved from Y2K fixes to client-server, then from on-premise to cloud. Now the shift might be from promoting hours to promoting outcomes and AI-powered platforms.
Interestingly, this selloff has additionally cooled valuations. Indian IT shares as soon as traded at a 30–40% premium to US friends. Now many commerce at round 21 occasions earnings (P/E), narrowing the hole to about 15–20%. That means they’re nearer to honest worth. For buyers who stayed away as a result of they seemed costly, this reset isn’t essentially unhealthy.
Because in the long run, this isn’t nearly Anthropic or one AI demo. Remember how again in 2021, markets overreacted with excessive optimism round SaaS and AI? Anything with “SaaS” or “AI” in its title traded like it will develop at 50% perpetually.
But at the moment, we’re seeing the precise reverse or a pessimistic overreaction. Profitable, cash-rich IT corporations are abruptly being handled as in the event that they’re outdated, all as a result of a slick demo video made AI look unstoppable.
And if historical past is any information, neither excessive often lasts.
Until subsequent time…
Don’t neglect to share this story with a buddy or member of the family who’s been biting their nails over the Indian IT selloff, and even with curious strangers on WhatsApp, LinkedIn and X.
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