Nifty IT bleeds over 6% in February so far— How to play the sector amid AI-led disruption?

IT stocks are going through a rough patch globally, hit by AI-led disruptions and concerns that AI automation can disrupt the traditional functions of the sector, such as outsourcing. Investors are also concerned about the mega investments in AI advancements and their impact on the sector going forward, as AI is increasingly getting embedded across multiple sectors and business verticals.

The Nifty IT index has suffered a loss of over 6% in February so far, with stocks such as Infosys, Tech Mahindra, Coforge, LTIMindtree, TCS, and HCL Tech falling 5-9% during the period.

How can AI impact the IT sector?

It is too early to fully assess the impact of AI on the IT sector, as the technology is evolving rapidly.

Experts highlight that AI product companies will keep launching new tools, but IT services firms are crucial for integration, modernisation, and implementation of AI-led application services across enterprise systems.

Sandeep Nag, the co-founder of MavenArk, believes AI is not eliminating IT services; rather, it is fundamentally transforming the services delivery model.

Nag pointed out that the Indian IT ecosystem has always been services-led and excels at scaling and delivering re-engineered offerings. Unlike US hyperscalers, the sector’s focus has not been on building large, foundational products such as LLMs, but instead on deploying practical, domain-specific solutions through smaller language models (SLMs) and applied AI.

As per Nag, AI adoption is expected to materially enhance productivity for Indian IT service providers—potentially by 25–50%—driving operating margin expansion of 200–400 bps through automation across coding (vibe coding), testing, maintenance, and support functions.

Over time, AI-led engagements could contribute nearly 20% of total sector revenues by 2030, with tier-1 firms targeting approximately $2 billion in annual recurring revenue, supporting profitability even amid global demand slowdowns, said Nag.

How to play the IT sector?

Experts suggest focusing on the fundamentals of the sector and waiting for the volatility to cool down before initiating any buy, as the impact of AI advancement on the sector cannot be fully discounted at this juncture.

“AI products such as Anthropic cannot be compared directly with traditional Indian IT services companies. We need to assess how much of that workflow automation segment actually contributes to IT services players’ revenue, especially within the BFSI vertical. In my view, it is minimal. So, I don’t see any significant impact of such AI-related developments on Indian IT companies in the near term,” said Dhanashree Jadhav, Technology analyst from Choice Institutional Equities.

IT services players have proven time and again that they do catch up with every major technological evolution. They are investing to stay ahead and remain relevant as technology changes.

Jadhav highlighted that any new AI innovation compresses timelines for productivity improvements. That becomes an important metric to track—how quickly enterprises can achieve productivity gains through AI-driven transformation.

“The sector may remain volatile in the medium term, but we have seen this before. For the last two quarters, there was a fear that AI would be a spoiler and would not add meaningfully to growth. However, growth has remained resilient despite weak discretionary spending, and margins have steadily improved despite wage hikes and other constraints,” Jadhav added.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.