Indian Stock Market Drops Over 1% as IT Stocks Fall Sharply

Indian stock markets saw a big drop of over 1% recently. This happened because shares of IT companies fell a lot. People are also worried that new AI technology might change the IT business. Other global market worries also played a part.
By Newsroom | Business, Technology |

Investor Sentiment Weakened as Technology Stocks Experience Significant Downturn

Indian stock markets, including the benchmark Sensex and Nifty, experienced a substantial decline of over 1% in recent trading sessions. This downturn was primarily driven by a sharp sell-off in the Information Technology (IT) sector, compounded by broader concerns regarding the potential disruption posed by artificial intelligence (AI). Weak global market cues also contributed to the subdued sentiment, leading to a widespread decline across many listed companies.

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

Context: IT Sector Under Pressure, Global Cues Weaken Markets

The recent performance of Indian equity markets has been marked by significant pressure, particularly within the technology sector. Major IT stocks such as TCS, Infosys, Tech Mahindra, and HCLTech have seen considerable drops in their share prices. This sell-off has erased billions in market capitalization from top IT firms in a matter of days.

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IT rout drags Indian markets down over 1% amid AI disruption fears - 2

  • Timeline of Events:

  • The IT index tumbled by 5.5% on Thursday.

  • Major IT companies like Tech Mahindra, TCS, and Infosys fell by over 5% each on Thursday.

  • Several IT stocks, including Infosys, Oracle Financial Services, TCS, and Wipro, dropped to fresh one-year lows.

  • On Friday, the Sensex was down 826.65 points or 0.99% to 82,848.27, and the Nifty fell 264.85 points or 1.03% to 25,542.35 at 1:00 pm.

  • By Friday afternoon, the Sensex was down 826.65 points, and the Nifty had fallen 264.85 points.

  • On February 13th, the Sensex closed down 1048 points at 82,626, and the Nifty 50 slumped 336 points to 25,471.

  • Top IT stocks experienced declines of up to 7.5% and up to 6%.

  • Key Actors:

  • Indian IT Companies: TCS, Infosys, Tech Mahindra, Wipro, HCLTech, Oracle Financial Services, Coforge.

  • Market Participants: Investors, Foreign Institutional Investors (FIIs), Domestic Institutional Investors (DIIs).

  • Market Indices: Sensex, Nifty, Nifty Midcap 100, Nifty Smallcap 100, Nifty Bank, IT Index.

  • Global Markets: U.S. equities market ended lower in overnight deals on Thursday.

Evidence of Market Decline and Sectoral Impact

Data indicates a broad market downturn, with the IT sector being a primary casualty.

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IT rout drags Indian markets down over 1% amid AI disruption fears - 3

  • The Sensex declined over 1,000 points, closing at 82,626 on February 13th.

  • The Nifty 50 slumped 336 points to 25,471 on the same day.

  • The IT index fell by 5.5% on Thursday, with major IT companies experiencing significant drops.

  • The broader market showed weakness, with 2,752 stocks declining against 1,256 advancing on the BSE.

  • Hindalco dropped 4.98%, Hindustan Unilever fell 3.59%, Eternal declined 3.46%, Adani Enterprises slipped 2.85%, and ONGC fell 2.68%.

  • The Nifty Midcap 100 fell 1.38%, and the Nifty Smallcap 100 declined 1.39%.

  • The Nifty Bank dropped 0.74%.

  • Top five IT stocks lost over ₹3 lakh crore in market capitalization during the week.

  • TCS shares have fallen 44% from their peak, reaching a more than 5-year low, with its market capitalization dropping to ₹9.60 lakh crore.

Deep Dive: AI Disruption Fears and the IT Sector's Vulnerability

Concerns surrounding AI's potential to disrupt the labor-intensive Indian IT services model appear to be the principal driver behind the current market sell-off.

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IT rout drags Indian markets down over 1% amid AI disruption fears - 4

The AI Threat to IT Services

  • Fears are mounting that advanced AI tools could fundamentally alter core areas of the technology and software business.

  • Indian IT firms have historically focused on services and deployment rather than building foundational AI models, unlike U.S. hyperscalers.

  • This reliance on external AI advancements could leave them vulnerable as AI companies develop their own competing software or enable businesses to build custom in-house solutions.

  • The existing business model of Indian IT companies, which heavily relies on human capital for services and deployment, is perceived as susceptible to automation and efficiency gains offered by advanced AI technologies.

Valuation and Industry Comparison

  • Several leading IT firms are currently trading at Price-to-Earnings (P/E) ratios below their sector averages, indicating a valuation discount.

  • For example, Infosys trades with a P/E around 21.3-22.6, TCS around 20.58-21.5, and Tech Mahindra around 31.7-32.8, while the industry average P/E hovers near 25.3-25.59.

  • Some industry observers suggest that AI tools might accelerate AI adoption rather than reduce demand for IT services.

Expert Analysis: Navigating the Current Market Turbulence

Market strategists are offering perspectives on the current situation and potential market movements.

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"Markets had entered a turbulent phase, with the sell-off in IT — a key profit driver for corporate India — weighing heavily on overall sentiment. He added that the full impact of the recent AI-related shock on the sector remained unclear." - VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.

"A sustained move above 25,750 may ease bearish momentum, while reclaiming the 25,830–25,900 zone could signal a revival in positive sentiment." - Anand James, Chief Market Strategist at Geojit Investments Limited.

"No incremental allocation to IT as of now." - Anand Tandon, Market Expert.

  • Some analysts do not foresee an immediate need for panic selling concerning the unwinding of the AI trade.

  • Technical indicators suggest support for the Nifty around the 25,750-25,800 levels, with resistance eyed at 26,000.

Conclusion: Market Correction Amidst AI Uncertainty

The Indian stock market is undergoing a significant correction, with the IT sector bearing the brunt of a widespread sell-off. Fears of AI-driven disruption to the labor-intensive IT services model have triggered investor caution. While some companies in other sectors have shown resilience, the overall market sentiment remains weak, influenced by both domestic IT sector woes and global economic factors. The full extent of AI's impact on the IT industry remains a key area of uncertainty for investors.

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Sources Used:

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Frequently Asked Questions

Q: Why did the Indian stock market go down?
The market dropped because IT company stocks fell a lot. People are also worried about how AI technology might affect the IT business.
Q: Which companies were most affected?
Major Indian IT companies like TCS, Infosys, and Tech Mahindra saw their share prices drop significantly.
Q: What are the worries about AI?
People are concerned that AI could change the way IT companies work, making some jobs less needed. This could hurt the current business model of these companies.
Q: How much did the market fall?
The main stock market indexes, Sensex and Nifty, fell by more than 1%. Some IT stocks dropped by over 5% in a single day.