India's IT stocks head for worst day in 4 months on AI disruption worries; TCS plunges 9%

India’s information technology stocks experienced their worst decline in four months on June 3, with the IT index falling 5.8% to 29,310.25 points. Tata Consultancy Services (TCS), the largest software exporter, led losses with a 9% drop, while Infosys and Wipro declined 4.3% and 3.7% respectively. Mid-tier firms Coforge and Persistent Systems each fell 5.7%. The downturn reverses a recent rebound, where the sub-index had gained 7% over the prior two sessions amid hopes AI spending would boost IT demand. However, investors now fear AI could reduce reliance on traditional outsourcing services. Kotak Institutional Equities warned legacy modernization opportunities may not offset deflationary pressures, while Ambit Capital noted fourth-quarter earnings confirmed ongoing sector challenges. Analysts at Indsec Securities and Finance projected the total addressable market for domestic IT firms could shrink by 20-25%. The broader Nifty IT index has already declined 22% in 2026, following a 26% drop in 2025. Global AI investments, including tools from Anthropic, have intensified market volatility, raising concerns about long-term demand for software services. Despite potential growth in AI governance and vertical solutions, brokerages like Ambit Capital argue deflation will outpace incremental demand. The sector’s struggles reflect broader uncertainty over AI’s impact on traditional IT revenue streams, particularly in outsourcing-dependent markets like India.