Shares of Indian IT companies including Infosys, HCLTech, TCS, Wipro and others dropped up to 3% on Monday as stronger-than-expected US jobs growth data boosted bets of a September interest rate hike by the Federal Reserve. The Nifty IT index dropped over 2% to trade at 30,082 on Monday, leading losses among all the major sectoral indices on the stock market.

1%, implying an improvement in the labour market after recent struggles, data released on Friday showed. 62 lakh in August, well above economists' expectations of a gain of 56,000.

The sharp growth boosted hopes for a rate hike by the Federal Reserve in September, with traders now pricing in approximately 57% chance of a rate increase this month. Higher US rates could curb client spending, weighing on Indian IT firms that generate a significant share of their revenue ⁠from the ‌United States..

Earlier this year, the sector witnessed a sharp selloff after breakthroughs by AI startups fuelled concerns about potential disruption to the traditional IT services business model. Later, a sharp selloff in global tech leaders proved to be a blessing in disguise for Indian IT stocks, which emerged resilient amid the global tech rout.

HSBC said India can serve as an “anti-AI” diversifier as sharp swings in technology-exposed markets encourage foreign investors to broaden their portfolios. HSBC strategists Prerna Garg, Herald van der Linde and Yogesh Aggarwal said in a report that AI-rotation outflows from India have “largely played out.”

While AI jitters continue to keep IT investors on the edge, CLSA downgraded several heavyweight stocks and revised their target prices, although it remains bullish on several mid-tier IT vendors. Indian IT has gone through a near three-year spending recession, on the back of weak discretionary budgets, elongated deal cycles, H-1B headwinds, AI driven revenue deflation and a selloff triggered by fears that agentic tooling (Claude Cowork, COBOL modernisation) would automate the legacy stack directly, Anand Rathi said in August.

“Our core thesis is that the AI cycle is pivoting from "building capacity" to "proving payback“ — a transition that is inherently services-heavy and plays squarely to Indian IT's strengths in deployment, integration, governance and legacy modernisation. Value is migrating from the layer that funds the AI build to the layer that deploys it: first to the enterprise software platforms — Systems of Record and Systems of Action that hold the data, permissions and approvals — then to the services firms that integrate and run them.