By Kushan Shah & Kishor Kadam
The persistent sell-off in IT stocks, coupled with a decline in metal and commodities and sluggish global cues, dragged down the markets on Friday, with the benchmark indices dropping more than 1.25%.
Over the last two sessions, the equity markets have seen an erosion of investor wealth of about Rs 10 lakh crore, including Rs 7 lakh crore on Friday alone. The Nifty Volatility Index (Nifty VIX) surged 13.36% — the highest rise in over 10 months.
On Friday, the BSE Sensex dropped 1,048.16 points, or 1.25%, to close at 82,626.76. During the day, it tanked 1,140.37 points, or 1.36%, to hit an intra-day low of 82,534.55. The Nifty 50 tanked 336.10 points, or 1.30%, to settle at 25,471.10.
Intra-day, it fell 362.9 points, or 1.4%, to hit a low of 25,444.30. A major share of this drop came from large cap giants including HDFC Bank, Reliance Industries, ICICI Bank, Hindustan Unilever Limited (HUL) and Eternal, which collectively contributed to over 600 points of the decline.
Anthropic Catalyst
The IT stocks represented by the Nifty IT Index recovered from its intra-day decline of 5.24% to close at a level 1.44% below Thursday’s close. The mid and small cap indices declined by 1.68% and 1.58%, respectively, underperforming the broad-based market indices.
The market breadth was negative as there were 2,882 losers compared with 1,318 gainers on the BSE.
Foreign portfolio investors sold shares worth Rs 7,395.41 crore on Friday — the highest single-day selling since October 31. Meanwhile, domestic institutional investors purchased equities worth Rs 5,553.96 crore, as per provisional data by the BSE.
The recent tumble of the IT stocks resulted from the panic selling due to fear of disruptions after American AI company Anthropic released its new open-source plug-ins and its new AI model Claude Opus 4.6, considered a threat to the existing business models of IT and SaaS companies due to its enhanced abilities to perform routine work tasks like research, running financial analyses and multi-tasking. Since February 4 when the plug-ins were launched, the Nifty IT Index has declined by 15.4%, eroding the sectoral market cap by Rs 5.08 lakh crore.
Disruption vs. Extinction
Amidst the panic selling, experts have mostly attributed this decline as a short-term correction. Sushovon Nayak, research analyst, Anand Rathi Institutional Equities, has called the sudden decline in IT stocks exaggerated and unwarranted. While explaining his verdict, Nayak said that even if Claude is able to develop a software or an application, it would still need partners for its implementation and customization, areas where Indian IT can play a key role. Nayak has pointed towards data cleaning, labelling, migration and governance coupled with cloud migration for enterprises as key areas of scope for the Indian IT companies where they can capture 10-15% of the total AI spending.
Shibani Kurian, senior fund manager & head – equity research, Kotak AMC, believes that while AI is transformative, it is unlikely to erode the revenue pool of the Indian services companies. Calling the narrative of the end of demand for IT services as extreme, she points to the complexities involved in the adoption of AI at an enterprise level involving significant data integration across platforms and data migration to the cloud which would require human-led integration. Kurian adds that the strong deal flow implies a more gradual transition. However, she does see the adoption of AI to introduce deflationary pressures which will have to be offset by increased volume and cost efficiencies.
As the market looks ahead, the sentiment remains cautious. Siddharth Khemka, head of research – wealth management, Motilal Oswal Financial Services, says that the IT sector will continue to face headwinds due to rising concerns over disruptions due to AI, which will weigh on future revenues. Overall, due to the mixed global market cues and sector-specific volatility, he expects the equity markets to remain range-bound.