Mumbai: KPIT Technologies led a sell-off in mid-cap IT stocks on Wednesday after warning of a near-term slowdown in revenue growth, adding to investor concerns over the broader impact of AI on the country's software services sector.

Shares of the software and consulting company tumbled 17% after it warned that financial performance in first and second quarters of FY27 would remain weak, citing "sudden actions by some European OEMs (Original Equipment Manufacturers) triggered by recent profit warnings/ adverse business outlook."

The warning dragged down the mid-cap IT pack, with Coforge, Tata Elxsi and L&T Tech falling 3-6% on Wednesday. The Nifty IT index dropped 2%, emerging as the biggest loser, while the benchmark Nifty gained 0.6%. The weakness in IT stocks comes at a time when investor sentiment about the sector's prospects is at recent lows on concerns that AI-driven productivity gains could impact outsourcing and delay technology spending. The Nifty IT index has declined 32% in 2026, making it the worst-performing sectoral index this year, compared with an 8.2% fall in the Nifty.

Sector Slump KPIT’s weak outlook reinforces fears of AI-led disruption and revenue slowdown

"We saw that over the past few years, engineering R&D firms like KPIT and Tata Elxsi benefited from a surge in outsourcing as global clients shifted work from other geographies to India amid uncertainty in Europe. With those disruptions largely behind us, order inflows are likely to normalise, a trend reflected in KPIT's recent commentary," said Devarsh Vakil, head of Prime Research at HDFC Securities.

Shares of KPIT have fallen nearly 52% so far this year. "The sharp fall in KPIT appears to be an overreaction, as the slowdown or terminations in deals across the IT sector have been known to the market for some time," said Apurva Sheth, head of research at Samco Securities.

Analysts expect KPIT to remain under pressure in the near term.

Nishchal Jain, Quant Researcher at Share.Market, said the stock has broken below all major moving averages, leaving it near a 52-week support zone, while any rebound may face resistance in the ₹650-700 range.

JM Financial downgraded the stock to 'Reduce' from 'Buy' and cut its price target to ₹620.

Vakil said he expects continued near-term pressure on engineering R&D companies.