IT rout drags Indian markets down over 1% amid AI disruption fears

Mumbai: India’s equity gauges slid 1.3% Friday on a sharp IT selloff spawned by recurring concerns of AI-led disruptions to the US economy and the fastest pace of job losses stateside since the subprime crisis. The broader market, where valuations had run up lately, came off as well on profit booking.

The NSE Nifty fell 336.10 points to 25,471.10, while the BSE Sensex dropped 1,048.16 points to end at 82,626.76. Both indices ended the week with losses of up to 1.1%.

The Nifty IT index, which tumbled as much as 5.2% during Friday’s session, ended 1.4% lower, taking its weekly decline to more than 8% – the highest losses in 10 months for a 7-day period.

The selloff wiped out ₹4.69 lakh crore in market value from the IT pack during the week.

“The weakness in the US markets due to the sharp declines in IT stocks cascaded to other sectors such as metals, as investors rushed to book profits from overheated stocks,” said Ajit Mishra, SVP Research, Religare Broking.

Nifty Metal index fell 3.3%, while the Realty index shed 2.2%.

Foreign Portfolio Investors Net Sellers
Among precious metals, gold rose 0.9% and silver jumped 3.3% on Friday.

Foreign portfolio investors (FPI) net sold Rs 7,395 crore, while domestic institutions bought Rs 5,554 crore. In February so far, global investors have purchased equities worth Rs 10,734 crore, after selling more than Rs 34,000 crore in January.

On Thursday, the Nasdaq Composite fell 2%, pressured by similar worries over AI disruptions.

In Asia on Friday, Hong Kong dropped 1.7%. China and Japan shed 1.3% and 1.2%, respectively, while South Korea closed 0.3% lower. Taiwan, however, gained 1.6%.

At home, the broader market took a beating with the Nifty Mid-cap 150 and Small-cap 250 indices slipping around 1.6% each. Of the 4,364 stocks traded on the BSE, 1,253 advanced while 2,960 declined. For the week, mid-caps declined 0.2% and small-caps rose 0.8%.

Among IT stocks, Coforge slid 4.4%, while Wipro, TCS and Oracle Financial Services Software dropped nearly 2% each. LTI Mindtree and HCL Technologies fell 1.7% and 1.2%, respectively.

Cautious Optimism
“The deep cuts in IT stocks were largely sentiment-driven since the valuations are attractive,” said Sonam Srivastava, founder and CEO, Wright Research. “The sharp fall offers a buying opportunity but not so much in the large cap space as the growth outlook is not very strong in those names.”

Major clients of TCS and Infosys are not expected to switch to AI immediately, but competitive intensity is likely to increase, she said.

Religare’s Mishra said global cues remain unfavourable and sentiment has shifted sharply in the past two sessions due to the IT selloff.

“If the US IT stocks witness a further fall, then it could rub off on Indian IT companies as well,” he said.

Fund managers said concerns in IT stemmed from a significant reduction in implementation timelines and large-scale productivity gains that could affect IT services revenue.

AI adoption at the global enterprise level remains nascent; as adoption rises, IT services use cases will improve, said Christy Mathai, Fund Manager, Quantum Mutual Fund.

“The valuations in IT stocks are below long-term averages and currently bakes in subdued growth,” said Mathai. “While there is valuation comfort in some of these stocks, investor sentiment continues to be weak.”