‘AIs scare trade’ tests resilience of India’s IT stocks

Core Viewpoint - The recent decline in India's technology services sector, driven by fears surrounding AI's impact, presents a buying opportunity for investors who believe in the resilience of these companies [1][4]. Group 1: Market Impact - The Indian technology sector has lost a combined market value of $56 billion since the release of a tool by Anthropic PBC, which is perceived as a threat to traditional business models [1]. - The NSE Nifty IT Index has dropped 15% since the announcement, marking its worst month since March 2020 [5]. - Despite the downturn, the sector is experiencing resilient order flows, and share valuations have decreased, with the Nifty IT gauge trading at 20 times forward earnings estimates, the lowest since April 2023 [9]. Group 2: Analyst Perspectives - Analysts from HSBC and JPMorgan believe that concerns regarding the impact of AI on Indian IT firms may be overstated, as these companies are likely to benefit from increased demand for AI integration [2]. - Stephen Bersey from HSBC argues that the notion of software becoming obsolete due to AI is flawed, emphasizing the need for software to manage interactions between AI and non-AI systems [7]. - Some analysts express skepticism about AI's potential to reduce earnings for IT outsourcers, while others assert that the sector is prepared for the changes, with companies increasingly discussing AI in earnings calls [7]. Group 3: Company Adaptability - Indian IT firms have a history of adapting to technological shifts, reskilling their workforce, and meeting client needs effectively [3][6]. - Companies like TCS reported that AI solutions now generate $1.8 billion in annualized revenue, growing at approximately 17% quarter-on-quarter [7]. - The industry benefits from large cash reserves that can support transitions as AI disrupts existing business models, along with a relatively young workforce capable of quick adaptation [8].