Indian IT stocks have remained under sustained selling pressure, with the Nifty IT index declining 17% so far in 2026. The downturn is largely attributed to rising concerns over potential disruption from rapid advancements in the artificial intelligence (AI) space.
The Indian IT sector is already grappling with slowing growth due to weak client spending and limited earnings visibility. The absence of the “AI froth” that has supported valuations of global technology companies is further weighing on stocks back home.
Infosys, Tata Consultancy Services (TCS), LTIMindtree, Coforge, Wipro, and L&T Technology Services are among the major IT players that have fallen more than 20% on a year-to-date (YTD) basis.
The AI fears stemmed from the launch of advanced generative AI models by platforms such as Claude and Palantir. The launch of Anthropic’s preview of its new model, Mythos, could mean another wave of disruption for the sector.
Anthropic’s Mythos is said to deliver a significant leap in agentic software development capabilities, based on qualitative assessments. Analysts caution that such developments could pose near-to medium-term risks to demand and valuations across the sector.
According to Kotak Institutional Equities, the model demonstrates a “step-change” in benchmark performance across software engineering tasks, marking a clear departure from the incremental improvements observed in recent iterations.
“We believe that the model raises near- to medium-term disruption risks for IT services, with the caveat that model capabilities are largely unproven in real-world scenarios due to a lack of a public release. Risks can be higher for firms with more exposure to application services,” said Kotak Institutional Equities.
If such performance enhancements translate effectively into real-world applications, Kotak Equities cautioned that its estimated 3%–3.5% annual growth headwind for the IT services industry over the next three years could shift from a conservative assumption to a more realistic baseline.
Further downside risks could also increase, especially if large capability improvements continue in future frontier models.
Impact on Indian IT Companies
The Mythos model provides a firmer foundation for AI disruption-related concerns and could pressurise the valuation multiples of IT services companies. Kotak expects Mythos to increase efficiencies across all IT services segments.
“Yet, stronger agentic software engineering capabilities could result in widening the gap in productivity increase between application services (also called custom application development) and other IT services segments (including BPO),” said the brokerage firm.
Among Tier 1 Indian IT, Infosys has a higher exposure to apps, while HCL Technologies has a lower exposure. In general, mid-tier IT has a higher exposure to apps, with Persistent Systems leading the pack among the Indian names.
“Mid-tier challengers can offset headwinds by share gains from slower to adapt incumbents,” Kotak said.
IT Sector Outlook
Analysts also believe that this was not the first time such scepticism has emerged for the Indian IT sector. A similar phase played out in 2016–2017, when clients shifted from traditional outsourcing to digital and cloud.
Investors worried about disruption, and margins and growth did weaken. But Indian IT firms adopted these technologies, tweaked delivery models, and returned to a steadier growth path, noted DSP Mutual Fund.
“Businesses evolve, and legacy sectors like IT services have done so repeatedly. The AI-led transition may look distant today, but it is too early to doubt its ability to adapt. Even after the recent derating, the sector still shows solid ROEs, disciplined capital allocation and reasonable valuations, making it relatively attractive versus the broader market,” said the fund house.
It expects a further fall in the prices of IT stocks to make the sector attractive on an absolute basis. “Till such times a systematic investing approach seems logical,” it said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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