Investors continue to dump tech stocks at a rapid pace as concerns deepen that advanced AI tools could disrupt core areas of the technology and software business.

Fears have now expanded to include potential impacts on other sectors such as financial services, transportation, and logistics, leading to a widespread sell-off on Wall Street overnight, which spilt over to Indian markets in Friday’s session.

Both the Nifty 50 and the Sensex crashed over 1% at their respective intraday lows, with tech stocks bearing the brunt of the sell-off. The Nifty IT index plunged another 5.2% to the day’s low of 31,422, extending losses to a third straight session and taking the cumulative decline to 12%.

The fall has also dragged the index down 15.40% month-to-date, marking its steepest monthly decline since March 2020, when it had plunged 16.10%.

Among individual stocks, all 10 constituents of the index were trading in the red, with Infosys leading the losses at 6.3%, while Coforge, Oracle Financial Services, TCS, HCL Technologies, and Wipro each fell over 5%.

Notably, Infosys, Oracle Financial Services, TCS, and Wipro slipped to fresh one-year lows.

The rout in tech stocks began earlier this week after Anthropic, part of a growing wave of AI startups, announced that it was launching a new artificial intelligence tool enabling automated tasks across legal, sales, marketing, and data analysis, which are key areas for software firms.

For context, during the same period last year, domestic tech stocks had also witnessed heavy selling following China’s launch of the low-cost AI model DeepSeek, which led to a 12.6% decline in the index in February.

TCS, Infosys lead wealth erosion as tech rout deepens

Amid the massive crash in tech stocks, the combined market capitalisation of the top five domestic IT companies has declined by nearly ₹3,11,873 crore this week, based on today’s intraday lows.

₹1,28,800 crore in market value”>TCS emerged as the worst performer, losing ₹1,28,800 crore in market value and falling to ₹9,35,253 crore, which also pushed it down to the fifth-most valued listed company from fourth place.

A 15% decline this week has led to a ₹91,431-crore erosion in Infosys’ market capitalisation.

Meanwhile, the third-largest tech company, HCL Tech, has seen its market cap shrink by ₹53,647 crore in just five trading sessions, including today.

Wipro and Tech Mahindra have also witnessed declines, with their market capitalisations ₹22,762 crore and ₹15,233 crore”>falling by ₹22,762 crore and ₹15,233 crore, respectively during this period.

Vinod Nair, Head of Research at Geojit Investments, said, “AI is creating a structural shift in Indian IT services by reducing timelines and automating tasks, putting pressure on the traditional headcount-based outsourcing model. Layoffs are likely in routine-heavy areas as fewer people will be needed to deliver the same outcomes.”

“Even ERP implementation, as highlighted by Palantir’s recent focus, is now vulnerable to AI disruption. Clients are shifting toward outcome-based pricing. In the coming quarters, AI adoption could create headwinds for deal wins, potentially impacting the topline, making close monitoring of deal flow essential to assess its real impact,” he further said.

Rapid investments to build AI infrastructure

Although AI is widely expected to emerge as a transformative force in the technology space, the pace of investment has accelerated at a time when returns are yet to match expectations.

This mismatch is raising concerns on the Street about the formation of a potential bubble, with some experts drawing parallels between the recent surge in AI stocks and the dot-com crash of the early 2000s.

According to a Bloomberg report, four of the biggest US technology companies together have forecast capital expenditures that will reach about $650 billion in 2026, an unprecedented level of investment.

Fed rate cut hopes dented, adding fuel to tech sell-off

The data on Wednesday showed that the US economy created far more jobs than expected in January, which could make it more difficult for the Federal Reserve to continue cutting rates this year. This is likely to keep the cost of doing business high in India’s IT sector.

The US Bureau of Labor Statistics, in its shutdown-delayed report, said 130,000 jobs were added to nonfarm payrolls in January, well above forecasts for a rise of 70,000, while both November and December were revised down slightly.

The unemployment rate ticked lower to 4.3% from 4.4% in December, below forecasts for a reading of 4.4%, signalling a stabilizing labour market at the start of 2026.

Fed policymakers now look likely to keep rates on hold for longer after the data.

Disclaimer: We advise investors to check with certified experts before making any investment decisions.