India's IT Sector in Unprecedented Selloff as AI Fears Trigger Market Rout
India's information technology sector is experiencing a dramatic market correction, with stocks plunging on widespread concerns that artificial intelligence could render key roles at major technology companies obsolete. This selloff represents one of the most significant downturns in recent memory, raising questions about the sector's future viability.
Market Value Evaporates in Eight Trading Sessions
The correction has been severe and rapid, with approximately Rs 5.7 lakh crore in market value erased within just eight trading sessions. The Nifty IT index has declined by roughly 19% over this short period, reflecting intense investor anxiety about AI's disruptive potential.
Individual stocks have suffered substantial losses during this eight-day decline:
- Infosys dropped 21%
- TCS fell 19%
- HCLTech lost 17%
- Both Wipro and Tech Mahindra declined 13%
TCS has now fallen a staggering 44% from its August 2024 peak, pushing its market capitalization below Rs 10 lakh crore and returning to levels not seen since 2020.
JPMorgan's Contrarian View: IT Firms as Essential 'Plumbers'
Despite this intense selling pressure, global investment bank JPMorgan has taken a contrarian stance, identifying what it considers compelling value opportunities in large-cap technology stocks. The brokerage has assigned overweight ratings to both Infosys and Tata Consultancy Services (TCS), while also highlighting growth-oriented companies including Persistent Systems and Sagility.
In a detailed report, JPMorgan analysts have urged investors not to equate the recent selloff with a structural collapse of the sector. They argue that while AI fears are driving the deep correction, IT firms will survive the storm and continue to play critical roles in enterprise technology ecosystems.
"While advances such as Claude code's Cowork plugin can meaningfully accelerate complex tasks and agentic AI can write more software, it's simplistic to assume this will be enterprise grade for every function and enjoy the tribal enterprise context IT Services vendors excel at," the report states.
The 'Plumbers of the Tech World' Analogy
Drawing a practical analogy, the JPMorgan report characterizes IT firms as the 'plumbers of the technology world' – essential infrastructure providers that enable complex systems to function properly.
"Indeed, IT services companies remain the plumbers in the tech world, and if enterprise software/SaaS is rewritten on a bespoke basis by agents - it will need significant services plumbing to work in enterprise context and minimise AI slop," the report explains.
This analogy reflects the continued need for integration, implementation, and operational support even as artificial intelligence tools raise concerns about disruption. The brokerage argues that IT services firms serve as the operational backbone of enterprise technology, a role that remains indispensable despite technological advancements.
Valuations Reflect Extreme Pessimism
According to reverse discounted cash flow estimates by JPMorgan, current stock prices suggest an exceptionally bleak outlook for the sector. At prevailing valuations:
- TCS is effectively valued on the assumption of roughly 4% revenue growth over the coming decade
- Infosys is priced for approximately 4% revenue growth
- HCLTech is valued for about 5.6% revenue growth
These projections fall well below the historical long-term growth range of 7–8% and imply a scenario where growth remains muted with no meaningful acceleration.
The brokerage noted that a decline exceeding 30% from current levels would likely require an extreme outcome in which companies experience zero terminal growth indefinitely. It described such assumptions as overly negative, particularly in light of emerging AI-related revenue streams and the potential for cyclical improvement.
Why AI May Actually Increase Demand for IT Services
The core argument presented by JPMorgan rests on a seemingly paradoxical idea: the rising use of artificial intelligence may actually increase the need for IT services rather than diminish it.
While tools such as advanced coding assistants can accelerate development and enable AI systems to generate more software, the report suggests it is unrealistic to assume these outputs will consistently meet enterprise-grade standards across all use cases or replicate the contextual expertise that IT services providers bring to complex organizational environments.
The report identifies several potential new areas of work that AI could create:
- Modernizing decades-old legacy systems previously too expensive to overhaul
- Building customized AI-driven versions of SaaS platforms if replacements become necessary
- Deploying AI agents for operational functions
- Strengthening AI governance and reliability frameworks
- Integrating AI into physical systems
"We expect net new areas of work including addressing multi-decadal tech debt but modernising legacy code (previously too expensive), rewriting custom agentic versions of SaaS (if SaaS has to be replaced), AI agents for Ops, AI trust and reliability services, physical AI integration to name a few," says JPMorgan in its report.
Limited Downside Risk Despite Current Pessimism
With the sector now trading at multiples typically associated with periods of severe market stress, JPMorgan believes downside risks may be limited even under conservative assumptions. The analysis indicates that even if the sector's recent period of low single-digit expansion were to persist permanently, downside risk would be limited to around 10% – a scenario that does not appear to justify the scale of recent selling pressure.
The brokerage's scenario-based assessment indicates that while bearish outcomes remain possible, the extent of further decline appears contained, whereas even a modest improvement in growth could result in meaningful upside from current levels.
Current free cash flow and dividend yields indicate deep value, reaching levels historically associated with periods of extreme market stress such as the global financial crisis and the pandemic. The firm recommends a barbell investment approach focused on large-cap value plays while acknowledging that, in the near term, it is difficult to precisely measure or counter concerns around AI-driven disruption.
