Indian IT Loses 25% of Its Value in 6 Months as AI-Led Repricing Adds Pressure
By Ajay Rag ·
On June 3, the Nifty IT index crashed 5.5%, with TCS, the country's largest software exporter, plunging nearly 8% intraday. It was also, in a larger sense, just another chapter in a long decline that has wiped out lakhs of crores in investor wealth across India's most-watched sector.
Since hitting a 52-week high of 40,301 in late 2025, the Nifty IT index has fallen to around 28,653—a decline of roughly 29%. Year-to-date in 2026, the index is down approximately 25%, making it one of the worst-performing sectoral indices on the NSE.
The damage is broad and consistent. A grinding erosion of value that has left investors, analysts, and company managements unsure about near-term prospects, as industry analysts expect a sector-wide repricing.
A Brief Rally, Then More Pain
After months of losses, the Nifty IT index staged a sharp recovery in late May and early June, surging 7–8% over multiple sessions. The proximate trigger was encouraging with positive earnings momentum from US enterprise software companies, including Salesforce and Workday. For a sector that lives and dies by the health of corporate technology budgets in America, that came as a relief.
Then came June 3. The index fell nearly 5% in a single session, with every major constituent in the red. TCS, LTIMindtree, Infosys, Coforge, Wipro, and HCL Technologies all fell sharply. Within 24 hours, the sector had surrendered a large portion of what it had spent weeks accumulating.
An equity analyst tracking the sector cautions against reading too much into any single session. "Short-term price moves in a sector with this much unresolved narrative are difficult to read cleanly. The rally and the subsequent decline are both consistent with a market that has not yet formed a settled view," the equity analyst shares anonymously.
The US Umbilical Cord
The sector remains vulnerable to American technology markets. Indian IT companies earn the vast majority of their revenues from US clients.
North America remains TCS’ largest market, accounting for 48.2% of its revenue in Q4 FY26. For mid-tier companies, this share is much higher, with Americas contributing nearly 84% of Mphasis’ revenue in Q4.
When American technology spending expectations shift, or when US technology stocks and Indian American Depositary Receipts (ADRs), which allow Indian companies to invest in the US stock exchanges, come under pressure, the effect transmits almost immediately to trading floors in India.
"A slow-burning sentiment overhang sits on the IT sector around whether AI disrupts the traditional labour-arbitrage services model. US corporate tech spending expectations drive their earnings outlook directly. When US software giants signal caution, the market re-rates Indian exporters almost immediately. US tech stocks priced overnight effectively set the tone for next-day trading in India," observes Praveen Bhadada, Managing Director and CEO of consulting firm Neovay Global.
The correlation, as analysts note, runs in both directions. The May-June rally was triggered by positive US earnings. The subsequent sell-off was partly an unwinding of that same trade amid mounting AI concerns.
The same dynamic has played out with Indian IT ADRs listed on US exchanges, which have seen sustained pressure in recent months. Whether this reflects genuine deterioration in company fundamentals or a rotation by global investors toward large-cap American technology names remains contested.
Budgets Are Moving, Not Growing
Enterprise technology budgets are no longer expanding the way they once did. Instead, Gaurav Vasu, Founder and CEO of business research platform UnearthInsight, says chief information officers are reallocating existing spending toward cloud modernisation and AI-related investments.
"This means traditional areas of spend, including certain ERP, CRM, and legacy transformation programmes, are competing for a smaller share of the overall technology budget," he adds.
The cyclical headwinds compound this structural shift. Geopolitical uncertainty, slower GDP growth across the US and Europe, and broader macroeconomic volatility have made clients more cautious across the board, extending decision-making timelines, delaying large project approvals, and keeping discretionary spending subdued even as AI investments grow.
UnearthInsight's current sector forecast reflects this dual pressure: low single-digit growth of 2–3% for FY27, a figure that would have read as a crisis in earlier cycles and today reads as the sector's new baseline.
The AI Question
Hovering over all of this—the sell-offs, the partial recoveries, the structural budget shifts—is a question that the market has been circling for months without resolution: will generative AI prove to be a growth engine for Indian IT services, or its most serious structural threat in a generation?
The equity analyst quoted above describes the market's difficulty in pricing this risk as a reflection of genuine ambiguity rather than analytical failure.
"The market will likely remain confused on this for longer than most expect, because both things are true simultaneously for different companies. The resolution will come from earnings, not from narrative. Companies that can demonstrate revenue from AI-led work will get re-rated. Those that cannot will continue to face pressure. The bifurcation is already beginning," the person notes.
Where Does the Sector Go From Here?
The brief rally in late May and early June showed that positive catalysts like strong US enterprise software earnings and a weaker rupee, adding incremental EPS tailwind, can still move the index sharply. The June 3 reversal showed, equally quickly, that institutional investors remain reluctant to hold those gains.
The decline in the Nifty IT index has shown several converging pressures like cyclical client caution, structural budget reallocation, and AI disruption anxiety.
India's IT sector has navigated difficult cycles before. What makes this one different is that the endpoint is genuinely unclear, not just for investors, but for the companies themselves.