Kolkata: Prominent IT stocks declined sharply on Wednesday in Indian equity market as heavy selloff was reported in tech companies in the US. Infosys stocks dived 7.30%, LTIMindtree slid 7.57%, Persistent Systems dived 7.53% and Tech Mahindra tumbled 6.55% on the BSE on the morning of Feb 4. The contagion spread to almost all stocks — Wipro fell 6.57%, HCL Technologies dropped 6.40 per cent, TCS 6% and Hexaware Technologies 5.29%. The cumulative impact pulled down the BSE IT index went down 5.83% and touched 34,984.16.
SBI Securities said, “US markets fell overnight led by losses in tech shares. Investors seemed shifting capital from high-value tech stocks to broader economy stocks. At close, Dow, S&P 500, Nasdaq were down by 0.3 per cent, 0.8 per cent, 1.4 per cent respectively.”
FPI selloff and herd mentality
What led to the slump in IT stocks on Wednesday? Analysts referred to fresh concerns over how AI-led platforms are collapsing time period required to deliver complex enterprise work, which, in turn, is leading to apprehensions over traditional IT services-led revenue models. Reports said the IT selloff was caused by following AI startup Anthropic revealing new agentic capabilities for its Claude platform. The outcome: it heightened concerns that if advanced automation is employed traditional software and professional services models would be seriously challenged.
Market analysts also pointed out that there might be significant gains in productivity using advanced technology but complexity remains and companies still need services firms for an array of work such as data, integration and execution.
Other analysts also said that the sell out in the US market on Feb 3 and in the Indian market on Feb 4 are triggered by diluting of positions by FPIs and not due to sudden change in fundamentals. It is more of a herd mentality in action.
Transition, not displacement
If some analysts are to be believed, it hardly indicated a signal of declining fortunes for Indian IT firms, which are mostly deploying artificial intelligence into its delivery modes. They point out how Infosys and Cognizant have partnered with Cognition to use Devin, an AI engineer which accelerates software development. It is a clear signal that services-oriented firms are already integrating AI into their work, rather than trying to work around them.
However, the use of AI will have productivity implications which is bound to have implications for the headcount-driven growth model that the IT industry practises. Reports said that Palantir cited spectacular examples of efficiency gains where planning cycles have been brought down from 160 hours to 10 minutes. Also material reviews have come down from weeks to below 60 minutes. Analysts pointed out that if such AI engines are applied to IT services, time can drastically come down in case of ERP testing, data migration validation, process mapping etc.
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