Indian IT stocks are under pressure, declining in early trade, even as broader markets remain relatively steady. The weakness reflects a mix of profit booking, softer demand signals and rising AI-led disruption concerns. Infosys, HCLTech, Tech Mahindra and Coforge are declining between 1% and 2%, while Tata Consultancy Services traded flat, reflecting a mixed but weak sectoral trend.
A key near-term trigger has been profit booking, with IT stocks having seen a sharp rally over the past few months. With valuations near the upper end of recent ranges, investors appear to be locking in gains, especially ahead of earnings season and global macro uncertainty.
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Fresh signals from Morgan Stanley point to moderation in IT spending across key verticals, particularly Financial Services and Retail—two of the largest revenue contributors for Indian IT firms. The brokerage's Q1CY26 CIO survey indicates stable overall budgets, but highlights deceleration in Financial Services spending and mixed trends in Retail, raising concerns over near-term revenue growth.
This is significant given the sector's heavy exposure. Companies like Mphasis (61% BFSI exposure), Coforge (48%), and Tata Consultancy Services (38%) remain highly sensitive to BFSI demand cycles. Retail exposure remains meaningful for players like Coforge (25%), Wipro (19%) and TCS (15%), amplifying the impact of any slowdown in discretionary tech spending.
Adding to concerns, Kotak Securities flagged that advancements in AI—particularly Anthropic's Mythos model—could compress valuation multiples for IT services firms. The brokerage believes that significant improvements in software engineering capabilities could increase automation and efficiency, potentially reducing demand for traditional IT services, especially in application development.
Companies with higher exposure to such services — like Infosys — could face relatively greater risks, while firms with diversified offerings may be better positioned. While long-term demand from digital transformation and AI remains intact, the near-term outlook is clouded by slowing discretionary spending and evolving technology disruption risks.
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