Hidden Victims in AI Sell-Off: Indian IT Stocks Lose About $50 Billion in Market Value This Week

Concerns that artificial intelligence will disrupt traditional businesses are spreading across the U.S. stock market. After consecutive declines in the software, financial services, real estate, and logistics sectors, the market is now focusing on the next sector facing sell-offs.

However, besides the frequent “victims” in the U.S. stock market, India’s IT industry has also become a target of AI disruption. On Friday, Tata Consultancy Services, a leading player in India’s IT sector, saw its stock price fall by 2.4%. Infosys declined by 2.2%, and HCL Technologies dropped by 1.2%.

India’s Nifty IT index fell as much as 5.2% on Friday and closed down 1.7%. This week, the index has already declined by 9.4%, marking the largest drop since early March 2020 during the COVID-19 pandemic, with market capitalization evaporating approximately $50 billion.

JPMorgan analysts noted that investors are worried that as AI prompts clients to reallocate spending, Indian IT companies may struggle to meet growth targets. However, they emphasized that the idea that AI can automatically generate enterprise software and replace the value created by IT service companies is overly simplistic.

Facing Challenges

JPMorgan believes that IT service companies remain the pipeline of the tech industry. Even if AI agents are used to customize and rewrite enterprise software or SaaS based on demand, they still require a large number of human programmers to ensure the software runs effectively in enterprise environments and to minimize AI flaws.

However, Sat Duhra, portfolio manager at Henderson Far East Income Fund, stated that Indian IT companies may not be doing enough to turn AI into an opportunity.

For a long time, Indian IT firms have relied on providing data processing, contract analysis, compliance monitoring, customer support, and related services to global enterprises. Now, AI tools are expected to automate these services.

Ankush Sabharwal, founder and CEO of CoRover.ai, said that enterprise AI will not destroy India’s IT services industry overnight, but it will have a significant impact on the value chain. As companies become accustomed to using AI systems capable of coding, testing, and customer service independently, large-scale, low-skill labor models are becoming increasingly unpopular.

Jefferies’ outlook is even more pessimistic, predicting that India’s IT industry will face greater pain in the future. Since application services account for 40% to 70% of the industry’s revenue, companies are under growth pressure. However, the market’s generally expected growth has not fully reflected this, posing downside risks to valuations.

Motilal Oswal estimates that due to the disruptive changes brought by AI, the industry could lose 9% to 12% of its revenue over the next four years.

It remains unclear whether this sell-off marks the beginning of a long-term downturn or is just a temporary market anxiety. But what is certain is that discussions around AI have undergone a fundamental shift.

(Source: Cailian Press)