Market Decline Spurs Investor Concern

On 23 February 2026, major Indian IT stocks slid as much as 2.5% following a cautious note from global brokerage firm Jefferies, which warned that the “AI pain isn’t over yet.”

Among the most affected were Mphasis, which led losses by falling about 2.5%, followed by Infosys, Wipro, LTIMindtree, Tata Consultancy Services (TCS), and HCLTech, which each saw declines ranging from approximately 1% to 2%.

The broader Nifty IT Index dropped 1.33%, deepening its year-to-date fall to nearly 19.5%, underscoring persistent negative sentiment around the sector.

Why Jefferies Is Cautious

Jefferies attributed the sell-off to AI-related disruption concerns, suggesting that traditional IT business models tied to managed services might shrink as automation and AI adoption increases.

The brokerage downgraded six major IT names:

Infosys and HCLTech — from Buy to Hold
TCS, LTIMindtree, and Hexaware — to Underperform
Mphasis — from Buy to Hold
Wipro — continues as Underperform

It also sharply cut target prices, in some cases by up to 33%, reflecting Jefferies’ view that downside risks still outweigh upside potential for these stocks.

Analyst View: Earnings & Growth Expectations Trimmed

In its updated report, Jefferies trimmed earnings per share (EPS) estimates for large-cap IT companies by about 1–4%, and projected a modest 6% earnings CAGR over FY26–28 — below consensus expectations.

The brokerage’s outlook suggests that near-term performance will hinge more on long-term structural shifts and sector transformation than on immediate earnings delivery.

AI: A Risk and an Opportunity

While the report highlights AI disruption risks, some market analysts argue that this technology could also become an engine of growth for Indian IT firms — especially those that pivot toward consulting, implementation and AI-driven offerings.

Nevertheless, uncertainty about how quickly and profitably companies will adapt has weighed on valuations and investor confidence in the short term.

What This Means for Investors

Short-term volatility: Analysts warn that pressure may persist as markets reassess sector growth prospects.
Structural shift: AI is reshaping service demand, which could benefit firms adept at digital transformation.
Selective opportunities: Some mid-sized and niche IT services companies may outperform as they adapt faster to evolving trends.

Conclusion