Mumbai, February 2026 —The Indian IT sector faced a brutal reality check during Monday’s trading session as brokerage heavyweight Jefferies issued a sweeping downgrade across the industry. Warning that the structural pain from Artificial Intelligence (AI) disruption is far from over, the firm’s cautious stance triggered a sharp sell-off, sending the Nifty IT index tumbling by over 400 points.

With valuations under pressure and a “worst-case” scenario threatening even deeper cuts, the giants of Indian tech are bracing for a prolonged period of uncertainty.

A Sector-Wide Sell-Off

The markets responded instantly to the Jefferies report, with the Nifty IT index losing 1.33% in a single day, extending its month-to-date decline to nearly 20%.

• The Biggest Losers: Mphasis emerged as the top laggard, dropping 2.5%, followed closely by Infosys and Wipro, which both shed nearly 2%.
• Large-Cap Declines: Heavyweights like TCS, HCL Tech, and LTI Mindtree weren’t spared, seeing intraday declines of around 1.2%.

Aggressive Downgrades and Deep Price Cuts

Jefferies didn’t just warn of volatility; it aggressively lowered its price-to-equity (P/E) multiples and earnings estimates for the coming years.

• Infosys & HCL Tech: Both were downgraded from ‘Buy’ to ‘Hold,’ with target prices slashed to ₹1,290 and ₹1,390, respectively.
• TCS & LTI Mindtree: These leading firms were moved to ‘Underperform/Hold,’ reflecting a significant shift in market sentiment.
• Wipro: The firm continues to be rated ‘Underperform,’ with its target price reduced further to ₹180 from ₹220.

The AI Disruption Factor

The core of Jefferies’ concern lies in the structural shift caused by Generative AI. The brokerage believes that the industry’s downside potential currently outweighs its upside, even after a 16% fall year-to-date. In a chilling “worst-case disruption scenario,” Jefferies cautioned that sector valuations could potentially crater by an additional 30% to 65% from current levels if AI replaces traditional service models faster than expected.

Shift to Mid-Cap IT

Interestingly, the report suggests a bifurcation in the sector. Jefferies now projects a modest 6% earnings CAGR for large IT firms over FY26-28—a figure that sits well below general market consensus. The brokerage firm expressed a preference for mid-sized IT companies, noting their superior ability to pivot quickly toward new AI opportunities compared to the rigid, massive structures of their large-cap peers.

Bottom Line

The era of predictable, double-digit growth for Indian IT giants appears to be under siege. As Jefferies notes, future stock performance will likely be tied to long-term survival and business model evolution in an AI-driven world, rather than simple near-term earnings delivery. For investors, the message is clear: the floor for IT valuations may still be a long way down.