Friday the 13th spooks markets

Bengaluru: Artificial Intelligence (AI) disruption fears continue as IT stocks tumble, leading to a sharp fall of benchmark equity indices Sensex and Nifty. Both plunged over 1% on Friday.

In a volatile session, the 30-share BSE Sensex plunged 1,048.16 points, or 1.25%, to close at 82,626.76. The 50-share NSE Nifty plunged 336.10 points, or 1.30%, to settle at 25,471.10.

Shares of Infosys were down 1.28% to close at Rs 1,369.50 on Friday on the BSE. TCS, Wipro and HCLTech shares were down 2.17%, 2.19% and 1.43%, respectively.

Hindustan Unilever, Eternal, Titan, Tata Steel, Adani Ports, PowerGrid, Reliance Industries, Bharat Electronics Ltd, Asian Paints, Mahindra & Mahindra and HDFC Bank, were the major laggards.

In the last week, the benchmark indices witnessed profit-booking at higher levels. The Nifty ended 0.87% lower, while the Sensex was down by 950 points. Among sectors, the IT index lost the most, shedding over 8%, whereas the Media index outperformed, rallying over 5%, said Amol Athawale, VP Technical Research, Kotak Securities.

During the week, the market consistently faced selling pressure near the 26,000/84,500 level. Technically, after a promising uptrend, the market has formed a reversal pattern near the said level, and it also formed a bearish candle on the weekly chart, which is largely negative, he added.

IT stocks are falling due to growing concerns over the impact of AI.

"Domestic equities ended lower, weighed down by weak global cues ahead of the upcoming US inflation data. Sentiment gains from the US-India trade deal have faded as renewed AI-disruption fears weigh on risk appetite, with markets worrying that Indian IT firms dependent on the labour arbitrage model may face tougher competitive pressure than their NASDAQ peers," Vinod Nair, Head of Research, Geojit Investments Limited, said.

This cautious tone extended across the broader market, pulling all major indices into negative territory, with most sectors closing in the red, he added.

Concerned over AI competition, IT stocks are hit across Europe and the US, leading to a sell-off in IT stocks in India in tandem with Wall Street.

"AI is clearly compressing the work in the software development life-cycle (SDLC), which is bringing growth down. Growth should accelerate once firms start moving to broad-scale AI transformation. However, this still seems to be a few years away," Peter Bendor-Samuel, Founder and Executive Chairman, Everest Group, said.

Though IT stocks have been plunging for a week now, analysts remain bullish on the sector’s opportunity in the long term. Recently, Ashok Soota, an IT veteran and Founder of Happiest Minds Technologies, said these developments (such as Anthropic's plugins) represent a significant opportunity and not a threat.

"We view Anthropic’s innovation as a catalyst for growth, reinforcing the essential role of IT services in guiding organisations through technological transformation. There is a lot of excitement around AI platforms and plugins, and rightly so, since they drastically lower the entry barrier for creating software. However, this does not reduce the need for companies like ours. In fact, it enhances the same," he said.