Kamal Ghorui
IT stocks crash! Shares of Indian IT majors Infosys, Wipro, HCL Tech, Tata Consultancy Services (TCS), and Persistent Systems tanked in opening trade on Wednesday, dragging Sensex down by over 100 points. The decline was due to concerns about the growing impact of artificial intelligence which intensified following Anthropic’s launch of new workplace productivity tools.IT stocks are seeing one of their steepest one-day declines in recent times on Wednesday, wiping out about Rs 1.9 lakh crore in market capitalisation. The heavy selling came as investors rushed to exit positions amid growing anxiety that rapid advances in artificial intelligence could undermine the relevance of conventional software and IT services.Shares of Infosys and Mphasis led the losses, sliding more than 7% each. LTIMindtree, Coforge, TCS and HCL Tech dropped in the range of 5–7%, while Wipro declined close to 4%. As a result, the total market value of companies in the Nifty IT index shrank by Rs 1.9 lakh crore, slipping to below Rs 30 lakh crore.Infosys closed the day down 7.37%, TCS down 6.99%, HCL Tech down 4.58%, while Wipro took the least hit in the pack of four at 3.79%. The negative sentiment mirrored weakness on Wall Street, where the technology-heavy benchmark Nasdaq declined 1.4 per cent, erasing nearly $300 billion in market capitalisation across the sector.
Why are IT sector stocks crashing?
- The sell-off in IT stocks was triggered by an announcement from US-based
AI startup Anthropic, which introduced a product aimed at corporate legal teams. - The company, known for developing the Claude chatbot, said the tool can automate a range of legal tasks such as reviewing contracts, sorting non-disclosure agreements, managing compliance processes, drafting legal briefs and generating standardised responses.
- The launch has deepened the cautious outlook on software stocks, as investors grow increasingly uneasy about rising competition and potential pressure on margins due to rapid AI adoption.
- Market participants worry that as artificial intelligence solutions become more advanced, technology firms may find it harder to maintain pricing power and protect profitability.
International brokerage Jefferies said in a February 2 report that it has cut back its allocation to the information technology sector as part of a reshuffle of its India model portfolio. Following the revision, the IT sector now carries a weight of 5.6 in Jefferies’ India portfolio, well below the 9.7 weighting assigned to the sector in the MSCI India index. The brokerage’s guarded approach comes amid persistent foreign portfolio investor selling, with overseas funds having withdrawn about $34 billion from Indian equities over the last 16 months, a period during which IT stocks have faced some of the heaviest pressure.
US IT sector stocks crash
US equities also reflected the technology-led weakness. The S&P 500 declined 0.84 per cent to settle at 6,917.81, while the Nasdaq Composite dropped 1.43 per cent to 23,255.19. The Dow Jones Industrial Average proved relatively more stable, closing 0.34 per cent lower at 49,240.99. Among major stocks, Nvidia and Microsoft fell by nearly 3 per cent each. Alphabet slid 1.2 per cent ahead of its earnings announcement on Wednesday, and Amazon slipped 1.8 per cent before releasing its quarterly results on Thursday.“The fear with AI is that there’s more competition, more pricing pressure, and that their competitive moats have gotten shallower, meaning they could be easier to replace with AI,” said Thomas Shipp, head of equity research at LPL Financial, which oversees $2.4 trillion in brokerage and advisory assets. “The range of outcomes for their growth has gotten wider, which means it’s harder to assign fair valuations or see what looks cheap.”Sectors previously considered relatively insulated from automation, including legal services, data analytics and customer support, are now increasingly viewed as vulnerable. As AI becomes capable of handling these functions, the large IT services ecosystem built around them could face serious structural threats.Reflecting these concerns, Piper Sandler cut its ratings on software companies such as Adobe Inc, Freshworks Inc and Vertex Inc on Monday. “Our concern is that the seat-compression and vibe-coding narratives could set a ceiling on multiples,” analyst Billy Fitzsimmons wrote, referring to the growing use of AI to generate software code.
What Anthropic has said
Addressing market concerns, Anthropic clarified that its newly launched plugin is not intended to offer legal advice. “AI-generated analysis should be reviewed by licensed attorneys before being relied upon for legal decisions,” the company said. In addition to the legal-oriented tool, Anthropic unveiled a series of open-source offerings designed to automate a wide spectrum of professional activities, ranging from sales functions to customer service operations.Anthropic, established in 2021, was founded by chief executive Dario Amodei along with several former employees of OpenAI, the developer of ChatGPT.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
