Indian IT Stocks Fall Up to 5% as AI Funding Worries and Infosys Downgrades Hit Sector

Indian IT stocks took a beating on Wednesday, Oct. 28, with the sector's biggest names falling as much as 5%.

Infosys fell 4.99% to a low of Rs 1,103.95 on the BSE. TCS, Coforge, Tech Mahindra and Mphasis led the slide. By 10:20 AM IST, the Nifty IT index was down about 3.1%, with Infosys off 4.4% and TCS and HCLTech each down roughly 3%.

The broader market fell with them. The Sensex was down more than 1% near 72,600 and the Nifty 50 was off 0.90% near 22,500 in the same window.

Infosys downgrades pile up

Infosys had its own problems before the AI headlines landed. At least six brokerages, including Axis Capital, IIFL, Anand Rathi and Arihant Capital, downgraded the stock this week. The trigger was the company's cut to its FY27 revenue guidance, which was slightly bigger than analysts expected.

The guidance cut has raised concerns about demand in North America and the outlook for IT services more broadly.

The AI bill keeps growing

The sector's drop came as fresh numbers on the cost of the AI buildout circulated. Anand Rathi, citing Anthropic's IPO filing, said the company has $321 billion of leases yet to commence. It also has $269 billion in minimum compute commitments across Google ($114.5 billion), Amazon ($110 billion) and Microsoft ($44.9 billion).

Meta, which posted negative free cash flow in the third quarter, is reportedly raising more than $95 billion. SpaceX has closed $40 billion of GPU and data-center debt on top of an $86 billion IPO.

Anand Rathi totals the near-term funding needs at $235 billion, assuming a $100 billion Anthropic IPO. That figure is the brokerage's own estimate.

The brokerage also pointed to Microsoft's workforce cuts as a sign of AI-driven price deflation in IT services. Rising compute spending, it warned, could squeeze discretionary IT budgets further.

The hedge argument

Indian IT has been pitched as a safer way to play AI. Anand Rathi laid out that case Wednesday: the capital intensity and utilization risk sit in the infrastructure layer, while Indian IT offers "relatively asset-light exposure to the subsequent enterprise deployment cycle," backed by net-cash balance sheets, low capex and strong cash conversion.

That thesis has helped the sector before. At one point the Nifty IT index gained 17% in a single month while global AI shares sold off.

Not everyone bought the hedge label even then. Sumit Pokharna, vice president for IT at Kotak Securities, said the rally was not driven by foreign institutional investors. "It is only the DIIs (domestic institutional investor) who are buying it," he said. At most, he said, foreign funds "might not be selling Indian IT stocks." He credited extremely cheap valuations and in-line earnings for the move.

Wednesday's selloff shows the other side of the same trade. A guidance cut, downgrades and a worry that AI spending crowds out IT budgets can all hit these stocks at once.

Global AI trade already shaky

The AI funding anxiety did not start this week. On Oct. 14, the Nasdaq and S&P 500 had their worst day since July. The next day, Oct. 15, CNN's market coverage shows the chip index fell 0.88% for a seventh straight session after swinging as much as 4.4% lower. It is down roughly 20% from its June peak.

South Korea's KOSPI plunged almost 8% on Oct. 15 and fell 18% over five sessions. It remains up almost 30% for the year.

Neil Wilson, a strategist at Saxo, cited "worries about the AI buildout, bubbly valuations, lower-than-expected earnings growth at leading US frontier labs, Chinese competition, inflation and rates." Multiple outlets reported that Anthropic told investors its sales grew 45% to $17 billion last quarter.

TSMC CEO C.C. Wei said rising component prices and macroeconomic uncertainty were hurting demand in some segments.

Not everyone sees a crack in the foundation. Hendi Susanto, a portfolio manager at Gabelli Funds, said "the biggest challenge in AI investing right now isn't the fundamentals. It is the expectations that are fragile." He expects the infrastructure buildout to continue into the new year, because suppliers don't commit billions to new fabs without orders.

Oil and the Fed

Indian shares had other headwinds Wednesday. Brent crude rose about 1.4% to $115.40 a barrel after an attack on a Saudi refinery, according to market reports. Reports of possible renewed U.S military action against Iran added to the unease. India imports most of its crude, and sustained higher prices could raise inflation and weaken the rupee.

The U.S. Federal Reserve is due to announce its policy decision later today. Markets broadly expect rates to stay unchanged, with attention on what the Fed says about inflation. In mid-October, core producer prices rose 0.7%, above estimates, and some traders had bet on rate hikes.

Jio Platforms debuted Wednesday at a 21.4% premium to its IPO price, making it India's second-largest listed company by market value. It did not stop the indices from falling.

It is unclear whether domestic buyers keep supporting IT shares if Anthropic's IPO and the Fed's message keep the AI funding debate going. Infosys sits in the middle of it, with downgrades fresh and its lowered FY27 guidance now the number analysts are measuring against.