AI stocks extended their decline for a fifth session on Tuesday, with the Nifty IT index falling 6% to a three-year low, as optimism over a US-Iran peace deal failed to reverse a selloff driven by mounting fears over artificial intelligence disrupting traditional IT services.
The selloff in artificial intelligence-related stocks deepened Tuesday, with the Nifty IT index plunging 6% to its lowest level in three years, as a potential US-Iran peace deal that sent oil and gold prices lower failed to stem losses triggered by fears that AI is cannibalizing traditional technology services.
"The market is finally pricing in what we've been warning about — AI is deflationary for IT services, and Accenture's booking collapse was the confirmation," Sandip Sabharwal, founder of investment advisory firm Sandip Sabharwal & Associates, said. "Indian IT is a trade, not an investment."
The rout erased more than Rs 1.35 lakh crore ($16.2 billion) in market value from Indian IT majors, led by Infosys, which crashed 9% to a near six-year low and lost Rs 40,000 crore in a single session. TCS, Wipro and HCLTech each fell between 6% and 8%, extending losses that began after Accenture Plc slashed its annual revenue forecast and reported a sharp decline in new bookings. Accenture shares themselves plunged nearly 20% in New York trading, their worst single-day drop in years.
At stake is the core thesis that has driven Indian IT stocks for two decades — that outsourcing and services revenue grow predictably with enterprise technology spending. AI threatens to upend that model by automating tasks that previously required armies of engineers, reducing the volume of billable work. The Nifty IT index is now heading for its worst year since 2008, according to Bloomberg-compiled data.
Accenture's Warning Reverberates Across the Sector
Accenture's fiscal third-quarter results revealed a steep drop in new bookings, which CEO Julie Sweet attributed to clients shifting from AI pilots to large-scale deployment — a transition that, in the near term, reduces demand for traditional consulting and systems integration work. The company lowered its full-year revenue growth forecast, sending a signal that the pain may persist through 2026.
The impact rippled beyond Indian stocks. The Nasdaq-100 removed Cognizant Technology Solutions from the index after more than two decades, replacing it with AI-focused firms Astera Labs and CoreWeave in a quarterly reshuffle that underscored the market's pivot toward pure-play AI infrastructure companies.
Contrarian Bets Emerge Amid the Carnage
Not all investors are fleeing. PPFAS Flexi Cap, India's largest actively managed equity fund, is increasing exposure to beaten-down IT stocks, with Chief Investment Officer Rajeev Thakkar arguing that pessimism is overdone. "We're betting on productivity gains and valuation comfort," Thakkar said. The fund sees the selloff as creating entry points in companies that will benefit from AI adoption over the long term.
Fund manager Christy Mathai also used the dip to add to his portfolio, favoring IT and financials over defense and chemicals. He anticipates an AI-driven inflection point for IT services within the next 12 to 18 months.
Veteran strategist Ed Yardeni described the selloff as a healthy correction. "AI stock valuations are undergoing a realistic reassessment," Yardeni said. "This is not a crisis — it's the market doing its job."
The broader market showed resilience despite the tech rout. The Sensex and Nifty rose for a fifth straight session, supported by banking stocks and falling crude oil prices, which dropped below $80 a barrel after the US and Iran reached a framework agreement to reopen the Strait of Hormuz. The International Energy Agency now projects a significant oil surplus by 2027 as Middle East supply returns to the market.
For investors, the divergence between AI-exposed stocks and the broader market creates a clear fault line. The Nifty IT index now trades at a discount to its five-year average forward price-to-earnings multiple, according to Bloomberg data. But with Accenture signaling further moderation and clients tightening discretionary spending, analysts caution that valuations alone are not a reason to buy.
"Near-term pain is likely to persist," Seshadri Sen, head of research at a Mumbai-based brokerage, said. "We favor domestic consumption and industrials over IT until earnings breadth improves."
This article is for informational purposes only and does not constitute investment advice.
