Skip to main content Exclusive news, data and analytics for financial market professionalsLearn more aboutRefinitiv Indian shares trail regional peers on $68.6 billion IT rout over AI concerns February 25, 20263:23 AM UTCUpdated ago By Bharath Rajeswaran Figurines with computers and smartphones are seen in front of the words "Artificial Intelligence AI" in this illustration created on February 19, 2024. REUTERS/Dado Ruvic/File Photo Purchase Licensing Rights, opens new tab Feb 25 (Reuters) - Indian shares h ...

With Tuesday’s 6% decline, the Nifty IT index has plunged over 21% in February alone, marking its worst monthly fall since the 2008 global financial crisis, according to an ET report. The trigger this time is not only macroeconomic weakness but also concerns about potential disruption to traditional IT services.Anxiety intensified after AI startup Anthropic said its Claude tool can help streamline COBOL code, raising fears over long-standing revenue streams for technology companies. The announcement sent sh ...

Concerns escalated after AI startup Anthropic said its Claude tool can help streamline COBOL code, raising fears of disruption to long-standing revenue streams for technology companies. The announcement sent ripples through global tech stocks. To put things into perspective, shares of IBM plunged 13% overnight, marking the company’s worst single-day selloff in about 25 years.In today’s session, IT stocks tumbled up to 8%. Tech Mahindra, Following the historic correction, the Nifty IT index now trades at an ...

IBM shares sank 13.2% to close at $223.35, marking their biggest single-day drop since October 18, 2000.What is COBOL?COBOL is a programming language widely used on IBM mainframes across banking, insurance and government systems. According to Anthropic, COBOL handles around 95% of ATM transactions in the US. However, it added that the number of people who understand the language keeps shrinking every year."Modernising a COBOL system once required armies of consultants spending ⁠years mapping ‌workflows. To ...

Core Viewpoint - The software sector is experiencing a significant downturn, with stocks facing existential threats from AI, leading to a debate on whether the selloff is justified or an overreaction [1][2]. Group 1: Software Sector Performance - Global software stocks have seen declines between 15% and 35% over the past 30 days, with Accenture and EPAM Systems losing 25% and 35% respectively [2]. - The Nifty IT index has also dropped by 16% during the same period, indicating a broader trend in the software sector [2]. - The iShares Expanded Tech-Software Sector ETF (IGV), which includes major firms like Microsoft and Oracle, has seen its performance ratio against the Nasdaq Composite index fall back to 100, erasing previous gains since the 2002 tech bull market [3][4]. Group 2: Drawdown Analysis - The current drawdown of 37% for software stocks is the worst in the post-dotcom period, surpassing previous drawdowns including those in 2022 [6]. - The standalone drawdown for IGV is over 30%, second only to a 50% drop in 2009 and a nearly 45% drop in 2022 [8]. - When comparing IGV to the S&P 500, the current ratio is worse than the trough formed in 2022, indicating significant underperformance [10]. Group 3: Semiconductor Sector Performance - In contrast to the software sector, the semiconductor sector is thriving, with companies like Nvidia and Micron benefiting from the AI boom [12]. - The iShares Semiconductor ETF (SOXX) has reached an all-time high in the post-dotcom period, reflecting strong performance compared to the Nasdaq Composite [13]. - The relative performance of SOXX against IGV has dramatically improved, with the ratio skyrocketing to 200 over the last 10 months [14]. Group 4: Valuation Considerations - Valuations for major chip stocks, except Nvidia and AMD, are above their five-year average multiples, while software stocks are trading below their five-year averages [18]. - In the Indian context, the Nifty IT index is trading at valuations higher than pre-Covid levels, despite corrections due to lack of earnings growth and AI disruption [21]. - Some mid-cap software companies are trading at high multiples that do not justify their earnings growth rates, raising concerns about sustainability [23].

Earnings Season Overview - The earnings season has shown improvement, with a balanced beat-miss ratio of 34% of companies beating profit estimates and 32% missing, indicating a recovery trend after Q2 [12] - The MOFSL universe reported a 16% year-on-year profit growth in Q3FY26, slightly above the 14% estimate [12] Earnings Growth Projections - Nifty earnings are expected to grow approximately 12% annually over FY25-27, with current valuations at around 20.4 times one-year forward earnings, suggesting limited downside if earnings hold [2][12] - Mid and small-cap companies are projected to deliver stronger earnings growth in FY27 compared to large-caps, although broader market valuations are considered stretched [8][12] Key Investment Ideas - In financials, State Bank of India (SBI) and ICICI Bank are highlighted as key picks, with SBI trading at about 12 times FY26 estimated earnings and expected return on equity of 16-18% over FY26-28 [5][12] - ICICI Bank is noted for consistent asset quality improvement, trading at about 20 times FY26 earnings [5][12] - In capital goods, Larsen & Toubro is favored due to a strong order book and expected earnings growth over FY25-27 [6][12] - Bharti Airtel is preferred in telecom, benefiting from tariff hikes and rising data consumption, trading at around 31 times FY27 earnings [6][12] - Mahindra & Mahindra is backed by strong SUV demand and farm equipment recovery, with earnings expected to compound at over 20% over the next two years [7][12] - Infosys remains a top idea in technology despite near-term uncertainties, with ongoing disruptions in IT services being a key monitorable [7][12] Sectoral Insights - Financials, Metals, and Automobiles are anticipated to be key earnings drivers in FY27, potentially contributing nearly two-thirds of incremental profit growth [11][12] - The brokerage emphasizes the importance of decisive policy steps and improving global trade visibility to stabilize foreign investor flows [11][12]

Market Overview - Equity benchmarks faced significant pressure, with the Sensex down 826.65 points (0.99%) to 82,848.27 and the Nifty falling 264.85 points (1.03%) to 25,542.35 [1] - The broader market decline was influenced by fading expectations of near-term US rate cuts and a 2.03% drop in the Nasdaq, raising concerns about global technology valuations [3] IT Sector Performance - The Nifty IT index dropped 1.79% to 32,568.00, following a steep 4.72% decline the previous day, marking its worst single-day fall in ten months [2] - Major IT companies experienced significant losses, with Coforge down 4.57% to ₹1,356.60, TCS down 2.36% to ₹2,685.10, and Infosys down 2.24% to ₹1,355.00 [2] Market Sentiment and Analysis - Analysts noted that the current AI shift presents unique challenges for Indian IT firms, which have doubled in size since the Cloud migration era, facing incumbency risks [3] - Selling pressure in the IT sector is attributed to concerns over global demand slowdown and uncertainty regarding AI-led disruptions [4] - Some experts argue that AI could compress the software development lifecycle and potentially expand demand for IT services, despite current concerns [5] Broader Market Dynamics - The market breadth was weak, with 2,752 stocks declining compared to 1,256 advancing, and 156 stocks hitting 52-week lows [7] - The Nifty Midcap 100 and Nifty Smallcap 100 indices fell by 1.38% and 1.39%, respectively, indicating a broader market downturn [7]

Market Overview - Indian equity markets opened sharply lower, with the Sensex falling 790.71 points to 82,884.21 and Nifty declining 254.95 points to 25,552.25, influenced by a global tech sell-off due to concerns over AI disruption to traditional business models [1][5] IT Sector Performance - The Nifty IT index experienced a significant decline of 4.72 percent, dropping to 31,594.70, marking its sharpest single-day decline in ten months [2] - Major IT companies faced substantial losses, with Infosys down 6.11 percent to ₹1,301.30, TCS down 4.59 percent to ₹2,624.00, HCL Technologies down 4.38 percent to ₹1,411.50, and Wipro down 3.55 percent to ₹211.31 [2][6] - The sell-off in IT stocks was attributed to a sharp decline in US technology stocks, with the Nasdaq falling 2.03 percent as investors reassessed the impact of AI startups on established tech companies [2] Broader Market Trends - The broader market showed mixed signals, with select financial stocks like Bajaj Finance and SBI Life Insurance witnessing buying interest, while Hindalco faced significant selling pressure, declining 5.78 percent to ₹908.70 [7][8] - Foreign Institutional Investors continued to buy equities worth ₹108 crore, while Domestic Institutional Investors invested over ₹276 crore, providing some support to the markets [9] Investor Sentiment - Concerns over AI-led disruption and fading optimism regarding near-term global rate cuts are expected to weigh on market sentiment [5] - Experts advised caution, suggesting that panic selling in IT stocks may not be prudent and that investors should consider accumulating high-quality growth stocks, especially those with strong Q3 results [8]

Core Insights - State Bank of India (SBI) has overtaken Tata Consultancy Services (TCS) to become the fourth most valuable listed company by market capitalization, with ICICI Bank climbing to the fifth spot, pushing TCS further down the rankings [1] - ICICI Bank's market cap reached ₹10.18 trillion, while TCS was valued at ₹10.02 trillion [1] - TCS shares fell nearly 5% to ₹2,766, marking the lowest level since December 2020, while ICICI Bank shares rose 1.5% to ₹1,428, the highest since January 16, 2023 [2] Market Dynamics - TCS is experiencing a decline due to panic selling in global tech stocks, driven by concerns over artificial intelligence (AI) impacting software companies and profitability [3] - The Nifty IT index dropped nearly 5%, down 11.7% year-to-date, reaching its lowest level since April 2025 [4] - Major IT firms like Wipro, Coforge, LTIMindtree, and TCS have seen significant declines in their stock prices, with Wipro leading the fall at 16.8% [4] Financial Performance - TCS reported a 13.9% decline in net profit for Q3FY26, amounting to ₹10,657 crore, down from ₹12,380 crore in the previous year [6] - The profit decline was attributed to restructuring expenses, one-time charges from changes in labor codes, and a provision of ₹1,010 crore for a legal claim [6] - Despite the profit miss, TCS's revenue performance exceeded Bloomberg estimates [6] Industry Outlook - Analysts at Motilal Oswal are monitoring AI-native partnerships as a key driver for the next 12-14 months, expecting a pick-up in AI services deals by mid-2026 [4] - Global SaaS companies, including Salesforce, are facing heavy selling as markets anticipate faster AI-led disruptions to legacy models [5] - IT services firms remain critical for large-scale integration, governance, data modernization, and system orchestration despite the shift towards AI workspaces [5]

Core Viewpoint - The market experienced a significant downturn due to the unveiling of 11 new AI plugins by Anthropic, raising concerns about the impact of AI on the profitability and competitive positioning of traditional IT firms [1][10]. Group 1: Market Reaction - The Nifty IT index saw its steepest decline in six years, plunging as much as 8% and wiping out approximately ₹2 lakh crore in market value [9][10]. - Persistent Systems shares fell over 6%, while major IT stocks like Infosys, Mphasis, and HCL Tech dropped between 6% to 8% [10]. - The selloff extended beyond India, with the Nasdaq dropping 1.4% and software stocks losing around $300 billion in market value [2][10]. Group 2: AI Impact on IT Industry - Anthropic's new plugins are designed to automate various professional tasks, including legal, sales, marketing, and data analysis, which could disrupt traditional IT services [5][6]. - Concerns are growing that AI could fundamentally alter the competitive landscape, leading to increased competition and pricing pressure, thereby diminishing the competitive moats of IT companies [8][10]. - Industries previously considered safe from AI disruption, such as legal services and customer support, are now viewed as vulnerable, potentially threatening the IT services sector [8][10]. Group 3: Industry Sentiment - The sentiment in the market has shifted dramatically, with analysts describing the situation as a "SaaSpocalypse," indicating a transition from viewing AI as a supportive tool to seeing it as a replacement for existing companies [9][10]. - Sridhar Vembu, a notable figure in the industry, highlighted the unsustainable nature of the SaaS model, suggesting that AI is exposing fundamental flaws in the industry [7][10]. - Thomas Shipp from LPL Financial noted that the range of growth outcomes for SaaS companies has widened, complicating fair valuation assessments [8][10].