Major information technology stocks on Dalal Street were under pressure again on Tuesday morning, with Infosys, TCS and HCLTech among the biggest losers in early trade.
By around 9:35 am, most IT stocks were deep in the red, pulling the Nifty IT index down more than 3% and .
The because of fear that artificial intelligence (AI) could reduce the need for some of the routine work Indian IT companies do for global clients.
There was a period of slight recovery in between, but yesterday’s global developments have triggered a fresh wave of selling and pushed the stocks lower again.
The first trigger is global uncertainty. Markets everywhere are on edge ahead of President Donald Trump’s State of the Union address. Investors are waiting to hear his comments on trade because the European Union recently froze a major deal with the United States after tariff changes.
Tariffs are taxes that one country puts on imported goods. When these go up or become unpredictable, companies hesitate to spend money and stock markets turn nervous.
Indian IT companies earn most of their revenue from the US and Europe, so any concern about trade directly affects investor sentiment.
Another major factor is fear of disruption caused by artificial intelligence. Recently, American AI company Anthropic launched tools that can automate many office processes. Reports from reliable global news outlets say these tools are capable of handling tasks like routine documentation, code generation and data processing.
These are exactly the kinds of activities that form a large part of the work Indian IT companies do for global clients. So even though nothing has changed for Infosys, TCS or HCLTech overnight, investors worry that future demand for traditional outsourcing may slow down as AI becomes more powerful.
The fear grew stronger after the American Depository Receipts of Indian IT companies fell overnight. ADRs are shares of Indian companies traded in the US. When those fall, it often signals how global investors feel about the sector. Since they were down, domestic traders expected weakness at home and started selling IT stocks at the opening bell.
Market experts are also pointing to changing trends in foreign investment. According to Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, foreign investors have been buyers in the Indian market in ten out of the last seventeen sessions. This means they are returning to Indian equities after weeks of caution.
But they are not buying IT stocks. They are buying capital goods companies and financial firms because those businesses are linked to India’s domestic economy, which is doing well. In contrast, they have been selling IT stocks because the sector depends on overseas clients, where spending has been slow.
Brokerages have also turned cautious on the sector. Several global analysts have cut their price targets for big IT companies because they believe clients in banking, retail and technology are reducing discretionary spending.
Discretionary spending refers to expenses that companies make when they have spare money, like new tech projects. When the global outlook weakens, these extra projects are the first to be paused. This lack of visibility makes investors nervous.
Put together, it has created a perfect storm for Indian IT stocks. Global uncertainties linked to tariffs, constant chatter about AI replacing routine IT work, weakness in US markets, selling in ADRs and cautious views from analysts have all come together on a single day.
ADRs, or American Depository Receipts, are versions of Indian company shares that trade in the United States and reflect how global investors feel about these companies. When ADRs drop sharply overnight, it usually signals a weak mood among foreign investors, and that pressure then spills over into the Indian market the next morning.
Even though the companies themselves are stable and profitable, markets move on expectations for the future. Right now, those expectations are cloudy.
For retail investors, today’s fall does not necessarily mean something is wrong with the companies. It reflects a shift in global sentiment and concerns about how quickly AI could change the technology services landscape. The broader Indian market remains strong with foreign investors showing renewed interest in sectors linked to domestic growth.
IT, for now, is simply caught in the crossfire of global uncertainty and fears of technological disruption.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)