The Indian IT sector is in the spotlight, and this time not for the right reasons. In the early trade today, the Nifty IT index collapses 5%, with all the constituents trading in the red.
The major IT behemoths such as Infosys plunged 5% in early trade, while TCS and HCL Tech were down 4% each. Coforge and LTIMindtree fell 3% apiece. Other IT stocks such as Wipro, OFSS, Mphasis, Tech Mahindra and Persistent were trading in the range of 2-3% lower.
After months of debate around artificial intelligence reshaping the technology industry, fresh developments have triggered a sharp sell-off in Indian information technology shares.
From heavy declines in US-listed receipts to a steep fall in the Nasdaq, global signals have turned negative. The result of which was that the Indian major IT counters such as Infosys, Wipro, TCS are facing renewed pressure.
Let’s take a look at the key developments that explain what is happening and why it matters –
Anthropic: The AI shock that shook markets
The big trigger for the sell-off has been a new set of artificial intelligence tools launched by US-based AI company Anthropic.
The company introduced workplace automation products that can handle tasks traditionally performed by humans or standard enterprise software. These include legal contract reviews, compliance checks, financial analysis, sales workflows and data processing.
This announcement has intensified fears that artificial intelligence may not just support IT services companies, but could directly compete with them.
Many Indian IT firms generate a large part of their revenue from services such as application development, maintenance, testing, data processing and back-office operations. If AI tools can perform these functions faster and at lower cost, it could reduce demand for traditional IT outsourcing.
Market experts say it is still too early to measure the exact impact. Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, said, “The impact of the ‘Anthropic shock’ on the growth and profitability of the IT industry is yet to be ascertained. There are different views on how this play out. The market has reacted hugely negatively. At this stage it is better to wait and watch. This is neither the time for panic selling nor the time for bottom fishing.”
Some brokerages have already tried to quantify the possible risks. Kotak Securities believes that generative artificial intelligence adoption could create a 2-3% annual headwind to revenue growth over the next few years, with the peak impact expected around financial year 2027.
Furthermore, another brokerage house Motilal Oswal estimates that 30-40% of IT services revenues are exposed to AI-led deflation, especially in application development and maintenance. In addition, it believes that around 9-12% of overall IT services revenue could be eliminated over three to four years due to productivity gains from automation.
Tech ADRs Fall: US signals turn negative
Another reason for the pressure is the sharp fall in American Depositary Receipts, or ADRs, of major Indian IT firms.
ADRs allow US investors to buy shares of foreign companies on American exchanges. When these receipts fall sharply overnight, it often signals how domestic shares might react in the next trading session.
Infosys and Wipro ADRs plunged as much as 10% in US trading overnight. This translates to investor nervousness about the impact of artificial intelligence on traditional IT business models. Since Indian IT companies earn a significant share of their revenue from the United States, any negative sentiment in American markets quickly spills over to Dalal Street.
The weakness was visible in domestic trading as well. The Nifty IT index dropped more than 5% in the previous trading session, marking its second such fall in less than ten days. All ten stocks in the index ended lower on February 12, with several declining between 4-7%. The sell-off wiped out approximately Rs 1.56 lakh crore in market value from the index in a single session.
Nasdaq slumps: Global tech rout add to worries
The global backdrop has also turned unfavourable. On Wall Street, the technology-heavy Nasdaq index fell around 2%. Major technology names, often referred to as the “Magnificent Seven,” saw declines, adding to overall market weakness.
When large US technology companies fall sharply, it tends to affect global sentiment.
Now, when looked at the Indian IT companies, the risk is two-fold.
One is the direct competition from AI-driven tools could affect service demand. Another is a global slowdown in technology spending could reduce client budgets. One of the key reasons for this is US remains the largest market for Indian software exporters, any slowdown there can directly impact order inflows and earnings growth.
All eyes on US inflation data
The outlook for inflation in US is another key aspect that the street is watching out for. Any weakness on the economic front would be another sentiment negative for the markets, especially tech sector