New York and New Delhi — Indian IT giants Infosys and Wipro faced their steepest losses this week after artificial intelligence startup Anthropic unveiled powerful automation tools for legal services. The shock announcement triggered a $1.
9 lakh crore market wipeout in India's IT sector, marking the worst single day since the COVID-19 crash of March 2020. Investors worldwide fear that AI-driven automation will devastate the business models of companies that have thrived by providing these exact services for decades.
American Depositary Receipts (ADRs) of Infosys dropped 5. 56 percent to $17.32, while Wipro ADRs plunged 4. 83 percent to $2. 56 in overnight Wall Street trading on February 4. The bloodshed immediately spilled over to Indian markets when trading opened, with Nifty IT index nose-diving nearly 6 percent—its worst performance in six years.
Shares of Tata Consultancy Services, Coforge, LTIMindtree, and Persistent Systems each fell between 5 and 8 percent as panic selling swept through the entire sector.
Anthropics' tool, backed by Amazon and Google, automates contract reviews, compliance workflows, legal brief preparation, and other functions traditionally performed by IT services teams. The company claimed its plugin does not provide legal advice, yet the damage to investor sentiment was already done.
Suddenly, the market shifted from viewing AI as a growth opportunity for tech firms to seeing it as an existential threat that could render entire business lines obsolete.
Thomas Shipp, head of equity research at LPL Financial, captured the market's anxiety perfectly, stating,
His words reflected widespread concerns that industries once considered safe from automation—legal services, data analytics, customer support—are now firmly in AI's crosshairs.
The sell-off was not isolated to Indian IT stocks. Global software giants also hemorrhaged value on Wall Street.
Gartner shares crashed 21 percent, while Adobe fell 7. 3 percent, Salesforce dropped 6.
8 percent, and consulting firms faced similar punishment. International brokerage Jefferies, which dubbed the event a "SaaSpocalypse," slashed its IT sector exposure in its India portfolio from 9.7 percent to just 5. 6 percent.
Meanwhile, the Nasdaq fell 1. 43 percent overall as AI-heavyweight stocks like Nvidia and Microsoft each dropped nearly 3 percent.
Foreign investors, already nervous about India's market, accelerated their exit. Over the past 16 months, overseas investors have pulled $34 billion from Indian equities, with the IT sector bearing the brunt of withdrawals.
This week's sell-off merely intensified an existing trend of capital flight driven by concerns about AI disruption and margin compression.
The broader question haunting markets is whether traditional IT services models can survive when AI performs the same work faster and cheaper. Companies like Infosys and Wipro built billion-dollar empires delivering legal analysis, data processing, and customer support.
Now, artificial intelligence threatens to automate these very functions, potentially collapsing the pricing power and profitability that have defined the sector for two decades.
What happens next remains uncertain. Investors are watching earnings reports and management commentary closely to understand how IT firms plan to adapt.
Some analysts expect temporary panic selling, while others question whether the current valuation multiples remain justified if AI truly delivers on its automation promises. For now, the Indian IT sector faces an existential reckoning, one that extends far beyond stock prices to fundamental questions about survival in an AI-dominated world.
Key Facts
• Infosys ADRs fell 5.56 percent to $17.32, while Wipro ADRs dropped 4.83 percent to $2.56 on February 4, 2026, with Nifty IT index plunging 6 percent—the worst day since March 2020.
• Anthropic unveiled AI tools capable of automating legal functions including contract reviews, compliance workflows, and legal brief preparation, backed by Amazon and Google.
• Foreign investors have withdrawn $34 billion from Indian equities over the past 16 months, with the IT sector hit hardest as Jefferies cut sector exposure from 9.7 percent to 5.6 percent in its India portfolio.
Key sentiment from the market reflects deep anxiety about AI's role. One trader described the mood as pure panic, with "get me out" style selling dominating trading floors.
Investors fear that if AI can perform specialized professional services, then IT companies lose their primary competitive advantage—the ability to deliver these services at scale with quality and compliance.
The story behind this crisis began years earlier. OpenAI's success startled Big Tech companies, prompting them to dramatically increase capital expenditure on AI infrastructure.
Hyperscalers began abandoning their asset-light business models to pursue AI opportunities directly. When Anthropic announced its tools, it confirmed what many investors already feared: the traditional IT services profit model faces disruption from an entirely new class of competitors armed with artificial intelligence.
Geographic ripples extend beyond India. UK-based consulting firms, US-based software companies, and European IT services providers all face similar pressures.
However, Indian firms face unique challenges because they operate on razor-thin margins and depend heavily on large multinational clients already investing billions in their own AI capabilities.
Do You Know?
Anthropics' valuation skyrocketed to approximately $350 billion in its latest funding round—doubling from $183 billion just last September—because investors believe its AI technology can genuinely transform professional services delivery across industries, from law to accounting to management consulting.
Key Terms
• American Depositary Receipts (ADRs): US-traded certificates that represent shares of foreign companies, allowing investors to buy and sell shares of Indian IT firms like Infosys and Wipro on Wall Street without currency conversion.
• Nifty IT Index: India's primary benchmark tracking the performance of the country's largest information technology and IT services companies, weighted toward giants like TCS, Infosys, and Wipro.
• Margin Pressure: When customers negotiate lower prices or companies face higher costs, reducing the profit they earn on each dollar of revenue—a major concern if AI makes services cheaper to deliver.
• Competitive Moat: The unique advantages a company possesses that protect it from competitors and preserve profitability; investors fear AI erodes the moats of traditional IT services firms.
• Automation: Using technology, in this case AI, to perform tasks previously done by human professionals, potentially eliminating the need for large teams of IT services workers.
Asia91 Original