Infosys, Persistent slump up to 8%; buy the dip or brace for more AI-led selloff?

Shares of Indian IT companies fell sharply on Tuesday, extending the massive selloff that has eroded a significant portion of investor wealth amid concerns over AI-led disruption in the sector. Analysts are now debating whether investors should buy the dip or wait for further consolidation.

Persistent Systems plunged about 8%, while heavyweights Tech Mahindra, Infosys, HCL Technologies, Tata Consultancy Services (TCS), and Wipro declined between 3% and 7%. The Nifty IT index dropped more than 5% to 29,960.15 as of 12:55 pm on Tuesday. The sectoral index has now fallen about 22% in just one month.

The selloff followed remarks from AI startup Anthropic, which said its Claude Code tool could be used to modernise a legacy programming language that runs on IBM systems, rekindling concerns about AI-led disruption in the sector.

The broader global tech selloff had begun earlier this year when Anthropic launched plug-ins for its Claude Cowork agent, designed to automate tasks across legal, sales, marketing and data analysis functions.

Are markets overreacting to AI worries?

Despite rising concerns about artificial intelligence disrupting software companies, the sector is far from obsolete, said Ajit Mishra, SVP – Research at Religare Broking. Large enterprises continue to rely on IT service providers for AI integration, cybersecurity, regulatory compliance, and the management of complex legacy systems, the analyst explained.

"While AI may reduce repetitive tasks, enterprise-scale implementation and risk oversight still require experienced partners. With valuations now correcting closer to long-term averages, much of the pessimism appears to be priced in. Recent management commentary and partnership announcements have also been relatively constructive," he added.

According to Mishra, investors will closely watch FY27 guidance during the upcoming Q4 FY26 results, particularly around deal pipelines, AI monetization, and margin outlook, before making any significant exposure to the sector.

Should you buy the dip in IT stocks?

Commenting on the sharp drop, Balaji Rao Mudili, Research Analyst at Bonanza, said that markets seem to be overreacting. He explained that previously, blockchain fears impacted banking and financial stocks. However, these industries emerged unharmed in the longer term as they adapted. “This is how things pan out as every major technology brings in both the optimists and the pessimists,” he said.

The best times for investments are often when headlines are bad, the analyst highlighted. He, however, cautioned that the IT valuations remain quite stretched. He reiterated that the reaction to the IT worries is extreme and the impact on fundamentals will not be immediate.

“Hence, we believe that with reasonable valuation and consistent order wins, investors will focus back on earnings after the selloff settles,” he added.

‘Accumulation on dip is a good strategy for long-term investors’

Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara, however, noted that the current selloff in IT stocks is more than a normal correction - it is a sign of a structural shift in the way business models are being viewed in the wake of AI disruption. He added that the current volatility in IT stocks is due to earnings uncertainty and a re-pricing of traditional services revenues.

High-quality IT stocks that can show a clear path of AI integration and an evolving revenue stream could be leaders in the medium term, according to Maurya. “Accumulation on weakness is a good strategy for long-term investors, but short-term traders should wait for margin stabilization before scaling up,” he said.

Pranav Koomar, Founder and CEO of PlusCash, also said that a ‘buy-on-dips’ strategy in the fundamentally strong IT names would be a good risk-reward trade-off. “The sell-off is factoring in the uncertainty about how quickly traditional revenue streams will change, but the companies that integrate AI into their core businesses and access new client budgets will be at the forefront of the recovery,” he said.

Better to wait?

Harshal Dasani, Business Head at INVasset PMS, meanwhile, said that the recent IT selloff is not merely sentiment-driven; it reflects a deeper structural reassessment. "From a positioning standpoint, the prudent stance is to stay away until there is a visible pivot. That pivot would ideally come in the form of stabilising order inflows, clearer AI monetisation strategies translating into revenue, and evidence that margin compression risks are contained. Catching falling sectors purely on technical oversold readings can be tempting, but without a fundamental turn, rebounds may remain short-lived," the analyst explained.

Patience here is the strategy, not indecision, according to Dasani. "Waiting for confirmation of demand recovery and sustainable growth visibility offers a better risk-reward setup than pre-emptively buying into structural uncertainty," he said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)