CNBC's Inside India newsletter: As AI shockwaves hit software firms, what’s in store for India’s IT titans?

Indian IT companies are experiencing their steepest stock declines since the 2008 global financial crisis in February 2026, as artificial intelligence disruption threatens traditional software services business models, with major AI firms partnering with Indian IT services providers while analysts cut price targets by up to 33%. The Nifty IT Index has plummeted 19.6% this month, reflecting investor concerns that rapid AI advancements could render traditional IT services obsolete despite partnerships between Indian giants like Tata Consultancy Services and Infosys with AI leaders OpenAI and Anthropic. Industry experts remain divided on the long-term impact, with some viewing AI as a significant opportunity for growth while others predict substantial margin compression as clients demand AI-integrated services at lower costs. Despite the market turmoil, Indian IT industry leaders remain optimistic about AI's potential, with Tech Mahindra's CTO Sham Arora calling AI implementation a "big opportunity" that will "strengthen growth across our business." However, analysts warn that the labor arbitrage model that has powered India's IT dominance for decades faces disruption from AI-driven technology arbitrage. Gartner's Biswajit Maity predicts that while traditional IT services companies will play a "pivotal role in enterprise AI adoption" through their client relationships and domain expertise, their business models will fundamentally transform as managed services contracts shrink and clients demand more AI-specific solutions. The financial markets have reacted negatively to these changes, with Jefferies downgrading most large Indian IT firms to either hold or underperform and cutting price targets by up to 33%. Nvidia CEO Jensen Huang attempted to reassure investors by suggesting that markets have "miscalculated the threat to software companies," explaining that AI agents will use existing software tools rather than replace them. However, with two trading sessions remaining in February, this month is poised to become the worst for Indian IT stocks in nearly two decades, despite projections that agentic AI software spending will reach $985 billion by 2030, creating substantial opportunities for IT service providers that successfully adapt to the new landscape.