The sell-off in information technology (IT) stocks amid fears of an artificial intelligence (AI)-led disruption of the sector and the resulting revenue loss for Indian IT majors intensified Friday. As big names in the sector plunged, the market felt the heat and the BSE Sensex index plunged 1,048.16 points or 1.3% to end the session at 82,626.76 points. The National Stock Exchange’s (NSE) Nifty 50 index also ended 1.3% lower.
IT stocks fell for the third straight day, with the Nifty IT index ending 1.4% lower. That, however, did not tell the full story because the index had crashed over 5% intraday. The sectoral index has now tumbled over 15% to wipe out Rs 5.08 lakh crore of investor wealth since the sell-off began with the launch of US-based AI firm Anthropic’s new tools on February 4.
Majors such as Infosys, Wipro, TCS, and HCL Technologies fell as much as 8% intraday before recovering to end 1-2% lower. Wipro, TCS, and Infosys also hit 52-week lows.
“Sentiment gains from the US-India trade deal have faded as renewed AI-driven disruption fears weigh on risk appetite, with markets worrying that Indian IT firms dependent on labour arbitrage model may face tougher competitive pressure than their Nasdaq peers,” Vinod Nair, head of research, Geojit Investments, said.
The panic over the IT sector also pulled down the overall market, with all of NSE’s sectoral indices ending lower. The Nifty Metal, Nifty Realty, Nifty Oil & Gas, and Nifty FMCG were the worst hit among these, ending 2-3% lower. Over 73% of the stocks trading on the exchange ended the session in the red. The India VIX index, which indicates the uncertainty in the market, surged over 13%, its biggest single-day rise in 10 months, to close at 13.29.
FPIs offloaded Rs 7,395 crore worth of equities on Friday – highest single-day selling in over three months. DIIs bought Rs 5,554 crore of local shares, according to the Bse’s provisional data.
The sell-off Friday followed the technology-centric Nasdaq Composite’s 2% fall in the US overnight as concerns regarding the ability of Indian IT majors to protect their earnings and adapt their business models to AI-led automation models deepened, which may cut a significant portion of entry-level jobs, disrupting India’s labour-intensive IT sector.
Last week, Anthropic launched a suite of workplace automation tools that can perform tasks previously handled by human workers or traditional software platforms. Since then, the Nasdaq has fallen 4%.
While the development led to panic across global markets, experts are still unsure of the impact and whether Indian IT firms will be pressured by such tools or whether they will be able to harness these in order to optimise their software-as-a-service (SaaS) offerings.
Many believe that developments such as automation will not have a major downside for Indian IT companies in the near-term, but investors are fearful of the potential long-term impact.
Global firm JP Morgan said “IT firms remain the plumbers of the technology world” and it foresees partnerships between AI tool firms and IT services firms, which could create new areas of work. It also suggested that AI will be just another tool to optimise operations and add more functionality, similar to past developments in the sector, such as offshore labour, enterprise software, and cloud services.
While each section has its set of expectations and has taken bets on how the situation will pan out, it’s unclear how things will be for certain in this changing landscape. Amid this uncertainty, experts say that fear has led to the widespread sell-off in the market.
In this case, when the change is as big as AI, which may lead to significant job cuts in the future, the fear has spread to other sectors too. For example, real estate stocks also fell sharply Friday, fearing that automation across sectors may lead to decreasing demand for office spaces, adversely affecting the sector.
“It is more about the fear… the actual impact (in earnings) will take much more time to show for the IT industry. This fear is not only regarding IT companies. For example, if you require fewer people to deliver a project, then you would require fewer commercial spaces too. That is why many of the commercial real estate players (stocks) have also fallen,” said the head of research at a large domestic broking firm, who did not want to be named.
Potential job losses can also impact demand for housing. Many other sectors could also be affected similarly.
Historically, markets globally always reacted negatively to uncertainty.
With the potential impact that AI could have across multiple sectors and the pace at which AI tools are evolving, even top market experts
can only guess how things shape up in the future, with the Indian IT sector facing the biggest threat.
While each section has its set of expectations and has taken bets on how the situation will pan out, it’s unclear how things will be for certain in this changing landscape. Amid this uncertainty, experts say that fear has led to the widespread sell-off in the market.
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