Indian IT stocks, including Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro and others, saw sharp declines on February 12, with the Nifty IT index down 4-5% and many heavyweight names hitting fresh lows.

Here are the core reasons driving the fall:

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1. Rising Fears of AI-Led Disruption

The dominant theme driving the sell-off is investor anxiety around artificial intelligence (AI) and how new AI tools could change the IT services business model.

Recent launches of advanced AI tools (e.g., by Anthropic) that automate legal work, coding and data analysis have heightened concerns that traditional outsourcing jobs — which depend on large human workforces — could shrink.

Because Indian IT companies generate a significant part of revenue from labour-intensive services, markets are now pricing in the risk that AI may reduce demand, billable hours, and margins over time.

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2. Weak Global Tech Sentiment Spillover

Indian IT stocks are closely correlated with global technology markets, especially in the U.S. and Europe.

When major U.S. tech stocks or software shares fall (often due to AI disruption fears and valuation reassessments), the impact transmits to Indian IT names faster because foreign institutions often trade them alongside global peers.

This global tech weakness leads to selling pressure in India too, independent of domestic fundamentals.

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3. Reduced Expectations of U.S. Interest Rate Cuts

Recent strong U.S. jobs data and lower unemployment figures mean the Federal Reserve is less likely to cut interest rates soon.

Why it matters:
Lower interest rates generally support higher equity valuations — especially in growth and tech sectors — by making future earnings more valuable. When rate cuts become less likely, markets see lower discounted earnings growth, prompting tech and IT stocks to weaken.

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4. Overseas Demand and Client Budget Caution

A large chunk of Indian IT revenue comes from corporate clients in the U.S., Europe, and other developed markets.

Weak global tech spending and cautious corporate budgets — driven by macro uncertainty and focus on cost optimization — reduce near-term demand for discretionary IT projects.

This has led investors to downgrade growth expectations, translating into falling stock prices.

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5. Technical and Sentiment-Driven Selling

Once a sector starts declining significantly, technical trading triggers (like stop-loss orders) and sentiment-driven selling tend to amplify moves.

In this case, broader fear around AI and rate policy has encouraged short-term traders to reduce exposure, triggering further declines across multiple IT stocks — not just isolated names.

Sentiment has become a major driver in the short term, even if underlying corporate earnings remain relatively stable.

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6. Profit-Booking After Prior Gains

Before the recent slump, IT stocks had experienced periods of strong rallies in the broader market context.

As prices climbed earlier, some investors chose to book profits when signs of volatility appeared (especially given the new risk factors), adding to selling pressure.

This profit-taking doesn’t indicate structural problems, but it adds to the downward momentum.

Bottom Line

The fall in IT stocks today is not due to a single factor, but a mix of global tech sentiment, macroeconomic expectations, and emerging structural concerns around AI’s impact on traditional IT services.

Whether this is a short-term correction or the start of a longer adjustment depends on how enterprises continue to spend on IT services and how Indian firms adapt to the AI era.