Bloodbath on Dalal Street: Why AI Fears Are Dismantling India’s $250 Billion IT Empire 

The February 12, 2026, selloff in Infosys and Wipro ADRs—triggered by Anthropic’s latest AI automation reveal—signaled not just another market correction but a structural rupture in India’s $250 billion IT industry, whose labor‑arbitrage model faces obsolescence as AI permanently reduces demand for human engineers. While the Nifty IT index tumbled into bear territory amid dual pressures of automation fears and fading Fed rate‑cut hopes, the carnage beneath the stock charts reveals a far deeper crisis: 5.2 million livelihoods, decimated campus placements, and a forty‑year value proposition unraveling in real time. Unlike past cycles, this disruption doesn’t shift what Indian IT does—it erases how much human capital is needed to do it, forcing companies to choose between margin‑saving automation and the very workforce that built them, with no easy transition in sight.

Bloodbath on Dalal Street: Why AI Fears Are Dismantling India’s $250 Billion IT Empire 

The 378,000 engineers sitting in Bengaluru’s Electronic City didn’t see it coming from a San Francisco startup announcement. But by the time the New York bell rang on February 12, 2026, their collective future had already been repriced. 

Somewhere in Yerwada, Pune, a Wipro project manager closed his laptop and stared at his ceiling for eleven minutes. His American Depository Receipts—the ones he’d accumulated through three years of employee stock purchase plans—had just vaporized ₹8.4 lakh in value. Eight thousand kilometers away, Anthropic’s product team was probably celebrating their latest automation release. 

This is the strange physics of modern global capital: a model update in California can erase more shareholder value than 200,000 Indian engineers can create in a quarter. 

The numbers tell the immediate story. Infosys ADR: down 8.22 percent to $14.46, brushing the day’s low like a wounded animal seeking cover. Wipro ADR: down 4.60 percent to $2.28. The Nifty IT index: down 5.5 percent in a single session, entering bear market territory with the kind of brutal efficiency that Indian IT was itself once famous for delivering to Western clients. 

But the numbers lie through omission. They don’t capture what this actually means—for the Noida call center worker who just noticed her company’s new chatbot doesn’t need her help anymore, for the Infosys campus in Mysore that feels increasingly like a monument to a business model that peaked five years ago, for the tier-2 engineering college placements that dropped 40 percent this season and will drop further next year. 

This isn’t a correction. Corrections are normal. Corrections are healthy. This is something else entirely. 

1. The Machinery of Fear: Understanding What Actually Changed

Let us be precise about February 12, 2026. The trigger was Anthropic’s latest automation push—but that’s like saying the Titanic was sunk by a particularly assertive iceberg. The iceberg was merely the object that happened to occupy the same coordinates as the ship’s fatal vulnerability. 

Indian IT’s vulnerability has been forty years in the making. 

Consider the fundamental value proposition that built companies employing 5.2 million Indians: We provide highly educated, English-speaking engineers who cost one-fifth of their American counterparts, and we deploy them in a labor-arbitrage model that scales linearly with headcount. 

For decades, this worked beautifully. If TCS wanted to grow revenue 15 percent, it needed to hire 15 percent more engineers. If Infosys secured a $200 million banking transformation contract, it meant 800 additional bodies in Bangalore, Chennai, or Hyderabad. The business model was simple, transparent, and brutally effective. 

Artificial intelligence doesn’t threaten this model. It annihilates it. 

The automation Anthropic demonstrated last week isn’t about replacing coders with robots—that’s yesterday’s fear. What spooked institutional investors into dumping $4.7 billion of Indian IT stocks in three trading sessions is something far more sophisticated: Anthropic demonstrated AI systems capable of understanding ambiguous business requirements, translating them into technical specifications, and executing the development work with minimal human intervention. 

This is not a productivity tool. This is a headcount replacement machine. 

“The math is inescapable,” a Morgan Stanley institutional sales trader told his clients on a hastily arranged conference call February 13. “Indian IT trades at 22-24 times earnings based on 8-10 percent growth expectations. If AI enables clients to achieve the same output with 30 percent fewer vendor engineers, that growth narrative breaks. The valuation multiple breaks. Everything breaks.” 

He didn’t mention the 378,000 engineers. He didn’t need to. 

1. The Long Shadow of 2022: Why This Bear Feels Different

Veteran IT analysts will tell you they’ve seen this movie before. The dot-com bust of 2000. The financial crisis of 2008. The COVID panic of 2020. Each time, the obituaries for Indian IT were written prematurely. Each time, the companies adapted, diversified, and emerged stronger. 

This time feels genuinely different—not because the technology is more capable, but because the direction of travel has fundamentally shifted. 

In previous downturns, the question was: When will client spending return? Today, the question is: Will client spending ever return in its previous form? 

Consider the US banking sector, which contributes roughly 30-35 percent of revenue for Tier-1 Indian IT firms. In January 2026, JPMorgan Chase announced it had reduced its vendor engineering headcount by 18 percent while accelerating its product roadmap. Bank of America’s CTO publicly stated that “generative AI has removed approximately 12,000 person-months of work from our 2026 plan.” 

These are not temporary budget cuts. These are structural reconfigurations. 

The Nifty IT index has declined 12.5 percent in the first six weeks of 2026 alone, following a 12.6 percent decline in 2025. Back-to-back double-digit annual declines are unprecedented in the index’s history. TCS has slipped from India’s fourth-most valuable company to sixth in less than two weeks. Infosys has shed $14 billion in market capitalization since February 4. 

And still, many analysts believe the market hasn’t fully priced the transformation underway. 

“There’s a cognitive dissonance in how institutional investors approach Indian IT,” explains Vikram Mehta, a technology research partner at a Mumbai-based alternative asset manager. “Their spreadsheets show linear decline in key client accounts. Their channel checks reveal clients are actively consolidating vendors and automating workflows. But their valuation models still assume a V-shaped recovery because that’s how previous cycles behaved. This is not a cycle. It’s a reset.” 

III. The Human Architecture of Crisis 

It is tempting—and emotionally satisfying—to frame this as a story of faceless algorithms displacing dignified labor. But the reality is both more mundane and more poignant. 

Take the case of Infosys’s development center in Thiruvananthapuram, where 1,400 engineers support a single large US telecom client. Over eighteen months, the client has reduced its statement of work from 1,200 engineers to 760. The work hasn’t disappeared; it’s been absorbed by automation platforms that the same engineers were trained to deploy.  

The project manager, a 47-year-old veteran with twenty-three years at Infosys, described the experience in a WhatsApp message he later regretted sending: “We are teaching machines to replace us. Every efficiency gain we deliver is a knife in our own backs. But if we don’t deliver it, Accenture or Cognizant will.” 

This is the trap Indian IT built for itself. The industry’s entire value proposition to global clients has been cost efficiency. For forty years, that meant labor arbitrage. Now it means automation. The vendors who successfully transition from labor to intellectual property will survive. The engineers who don’t transition will not. 

The math is brutal and simple. Infosys employs approximately 335,000 people. To maintain historical margins while absorbing AI-driven pricing pressure, the company would need to reduce its workforce by roughly 18-22 percent over three years—even as it grows revenue. That’s 60,000 to 70,000 positions. 

Those positions aren’t abstract line items. They are specific mortgages in Whitefield, specific school fees in Hinjewadi, specific medical insurance policies covering parents with chronic conditions. They are two-wheeler EMIs and daughters’ wedding savings and the difference between retiring in Pune versus retiring in a tier-3 hometown where rupees stretch further. 

The industry has faced downsizing before. It has never faced downsizing at this scale, at this velocity, with the broader economy generating insufficient alternative employment for displaced white-collar workers. 

1. The Fed, The Dollar, and The Final Nail

It would be convenient to blame this entirely on artificial intelligence. Convenient, but incomplete. 

February 12’s selloff was amplified by a parallel macroeconomic shock that hit Indian IT at its most vulnerable point. US job growth unexpectedly accelerated in January. The unemployment rate fell. And just like that, the market’s carefully calibrated expectations for three Federal Reserve rate cuts in 2026 evaporated. 

For Indian IT, this is existential. 

Consider the geometry of the industry’s exposure. Approximately 60-65 percent of revenue for Tier-1 Indian IT firms originates in North America. These are long-term contracts priced in US dollars, delivering services delivered from Indian rupees. When the dollar strengthens against the rupee, Indian IT enjoys a translation benefit. But when US interest rates remain elevated, the demand for IT services contracts. 

This is the double leverage that has historically made Indian IT both immensely profitable and immensely volatile. High rates constrain client IT budgets. Constrained IT budgets pressure pricing. Pricing pressure accelerates automation adoption. Automation adoption reduces headcount requirements. Reduced headcount requirements trigger valuation multiple compression. Multiple compression begets more selling. 

The loop closes on itself, tighter with each iteration. 

“The market is pricing a simultaneous deterioration in both the growth outlook and the margin structure,” explains a Deutsche Bank India equity strategist. “That’s rare. Usually one offsets the other—weaker growth leads to cost cutting that protects margins. But AI-driven cost cutting is different because it actually reduces the revenue base over time. You can’t cut your way to growth when the cuts themselves shrink your addressable market.” 

1. The Piyush Goyal Paradox

Amid the carnage, Union Commerce Minister Piyush Goyal offered a characteristically contrarian perspective. Speaking to reporters on the margins of an industry event, he described the selloff as “a good time to pick” IT stocks and urged investors to “have faith in the system.” 

The timing was either masterfully counter-cyclical or spectacularly ill-judged, depending on whom you ask. 

Goyal’s argument—that Indian IT has survived existential threats before and will do so again—is not without historical merit. The industry navigated the Y2K hangover, the dot-com implosion, the 2008 financial crisis, and the disruptive rise of cloud computing. Each time, the doomsayers were proven wrong. Each time, Indian IT found new services to offer, new geographies to penetrate, new verticals to conquer. 

But this moment is different in one crucial respect. Previous disruptions changed what Indian IT did for clients. This disruption changes how much Indian IT is needed to do it. 

Y2K required millions of person-hours to rewrite COBOL code. Cloud migration required armies of engineers to re-platform legacy applications. Digital transformation required design thinking consultants and agile coaches and user experience specialists. Each wave required more human capital, not less. 

Generative AI is the first technology wave in forty years that reduces the human capital required to deliver IT services. 

This is not a cyclical phenomenon. It is not a passing regulatory concern or a temporary budget constraint. It is a permanent, structural reduction in the labor intensity of software development and maintenance. And no amount of ministerial exhortation to “have faith” can reverse the underlying economics. 

1. The Survivors and The Vanished

Not all Indian IT companies will perish. Some will navigate this transition successfully, emerging smaller but more valuable. Others will find themselves trapped between declining legacy businesses and new capabilities they cannot build fast enough. 

The market is already drawing distinctions. 

TCS, with its stronger consulting capabilities and deeper client relationships, has lost 5.5 percent in the current selloff—painful, but less catastrophic than the 8.2 percent decline in Infosys ADRs. HCLTech, with its unique portfolio of software products, has held relatively firm. Wipro, still in the midst of a multi-year turnaround effort, has been punished most severely. 

These distinctions matter because they reveal the market’s theory of which capabilities will matter in the AI-native era. 

Consulting-led relationships matter more than labor-arbitrage relationships. Intellectual property matters more than headcount. Industry domain expertise matters more than technology agnosticism. The firms that survive will be those that successfully transition from selling engineering hours to selling business outcomes. 

This transition is difficult, expensive, and uncertain. It requires different talent, different sales motions, different compensation structures, and different client conversations. It requires accepting that the addressable market may be permanently smaller—but more profitable per unit of revenue. 

Some firms will make this transition. Some will not. 

VII. The Unasked Question 

Throughout the coverage of February 12’s selloff, throughout the analyst calls and investor notes and television debates, one question has remained conspicuously unasked: 

What happens to the engineers? 

Five million two hundred thousand Indians work in the information technology and business process management industry. They earn salaries that support an estimated 18-20 million dependents. They pay taxes that fund schools and hospitals and roads. They consume housing and automobiles and consumer goods. They are, in a very real sense, the shock absorbers of India’s economic miracle. 

The industry added approximately 60,000 net new jobs in 2025—the lowest annual increase since 2017. Attrition has fallen to historic lows, not because employees are more satisfied but because alternative opportunities have evaporated. Campus placements, once the subject of breathless media coverage celebrating lakh-plus packages, have been quietly scaled back. Engineering enrollments are declining for the fourth consecutive year. 

None of this is captured in the ADR prices flashing red on New York screens. None of it appears in the technical charts identifying support levels and resistance zones. None of it factors into the discounted cash flow models that determine fair value estimates. 

But it is the story beneath the story. It is the human cost of technological progress, distributed across a million households that did not consent to this particular future. 

VIII. What Comes Next 

The Nifty IT index will not fall forever. At some point, valuations will become sufficiently depressed to attract value investors. The selling will exhaust itself. Technical bounces will be celebrated as evidence that the worst has passed. 

But the structural adjustment has only begun. 

Over the next three to five years, Indian IT will transform from a labor-arbitrage industry into something else entirely. The most successful firms will emerge as specialized providers of AI-enabled business transformation services, smaller in headcount but larger in per-employee revenue. The least successful will become shadow captives of their largest clients, gradually absorbed into the very organizations they once served. 

The engineers will adapt—they always do. Some will upskill into AI architecture and prompt engineering. Some will migrate into product companies that value deep technical expertise. Some will launch startups targeting niches too small for the majors to pursue. Some will leave technology entirely, applying their analytical training to finance, operations, or entrepreneurship. 

But adaptation at scale requires time, capital, and institutional support. Time is scarce. Capital is fleeing the sector. Institutional support, beyond rhetorical encouragement, has not materialized. 

The February 12 selloff will be remembered as the day the market finally acknowledged what had been visible for months: the Indian IT industry is not passing through a cycle. It is closing a chapter.