Information technology (IT) stocks witnessed heavy selling on Thursday, dragging benchmark indices lower, as a sharp overnight fall in US technology shares, rising concerns over artificial intelligence (AI)-led disruption, and fears of prolonged high interest rates hurt investor sentiment.
The Nifty IT index fell 2.67% to 27,525.80, emerging as the worst-performing sector on Dalal Street. The decline also weighed heavily on the Sensex, where IT majors were among the biggest losers.
HCL Technologies was the biggest Sensex loser, falling 2.85%, followed by Infosys, which declined 2.66%. Tech Mahindra fell 1.65%, while dropped 1.48%.
Other IT stocks also came under pressure. OFSS fell 3.75%, Persistent Systems dropped 2.84%, Coforge declined 2.76%, LTIMindtree fell around 2.7%, Mphasis slipped 2.56%, while Wipro fell 1.50%.
The biggest reason behind the decline in Indian IT shares was the weakness in global technology stocks.
Wall Street witnessed its sharpest selloff in weeks on Wednesday, with the tech-heavy Nasdaq Composite falling nearly 2%. The correction was led by a sharp fall in -linked stocks, as investors booked profits in companies that had seen a strong rally.
AI chip giant Nvidia dropped 3.7%, while Broadcom fell 5.1%, triggering a broad selloff in semiconductor and technology shares.
The weakness spread to Asian markets as investors reacted to the risk-off sentiment coming from the United States.
Another key reason behind the fall was renewed worries over the long-term impact of artificial intelligence on the IT services industry.
While AI has created new business opportunities, investors are increasingly concerned that automation and AI-led productivity gains could reduce demand for traditional IT services.
Global brokerage HSBC warned that AI-led deflation could continue to pressure the growth outlook for IT services companies for another six to eight quarters.
The brokerage also highlighted that rising merger and acquisition activity could create additional risks for the sector and said IT sector valuations may eventually fall towards 13–14 times price-to-earnings multiples.
The latest US inflation data has added another layer of concern for technology stocks globally.
The US Consumer Price Index (CPI) rose 4.2% year-on-year in May, the highest level in three years, largely due to rising energy prices amid the Middle East conflict.
Higher inflation reduces the possibility of interest rate cuts by the US Federal Reserve and increases the chances of rates staying elevated for longer.
This hurts technology and growth stocks because a large part of their valuation depends on expected future earnings. Higher interest rates reduce the present value of those future cash flows, making such stocks less attractive.
The latest decline highlights the continuing volatility in IT stocks as investors assess whether AI will become a growth driver or a threat to the traditional outsourcing business model.
The sector is also facing pressure from slower global technology spending, uncertainty around client budgets and concerns over the economic impact of higher interest rates.
For Indian IT companies, which earn a significant share of revenue from the US market, weakness in American technology stocks and concerns over US economic conditions remain key factors that investors are closely tracking.
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