The IT rout began on Dalal Street back in February this year after AI startup Anthropic launched plug-ins for its Claude Cowork agent which could automate tasks across legal, sales, marketing and data analysis. “We call it the ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks,” Bloomberg quoted Jeffrey Favuzza from the equity trading desk at Jefferies as saying.
The Nifty IT index has fallen more than 24% this year so far, and heavyweights Infosys, TCS and Wipro are down up to 29%. The stocks recorded sharp decline again on Tuesday after Nvidia said the revenue opportunity for its artificial intelligence chips may reach at least $1 trillion through 2027.
At the chipmaker’s annual GTC developer conference in San Jose, California, Nvidia CEO Jensen Huang unveiled a new central processor and an AI system built on technology from Groq – a chip startup from which Nvidia licensed technology for $17 billion in December. “The inference inflection has arrived,” Huang said. “And demand just keeps on going up,” he added.
Additionally, investors are also eyeing the outcome of the US Federal Reserve’s FOMC meeting later this week. The meeting’s outcome will likely impact investor sentiment around IT stocks as these Indian companies derive a significant portion of their revenue from the US market. Heavyweights including Wipro and Infosys hit fresh 52-week lows on Tuesday.
What lies ahead?
While Nvidia’s announcements sparked a rally on Wall Street, they deepened fears among Indian IT investors that faster, cheaper AI inference will compress demand for Indian IT outsourcing, said Dhanshree Jadhav, Analyst – Technology at Choice Institutional Equities. “Adding to the ambiguity was the upcoming US Fed FOMC meeting, where the interest rate stance will directly influence US enterprise IT spending,” the analyst added.“We believe the current reaction is largely sentiment-driven, with significant growth potential yet to unfold in the Indian IT sector. The role of system integrators remains critical and is evolving further with rising AI adoption. Current valuations reflect elevated pessimism, creating selectively attractive opportunities and supporting a cautiously positive stance in certain pockets,” Jadhav further said.Nuvama Institutional Equities in its note highlighted that FY26 had a litany of historic shocks: tariffs, technology and now oil. “Is demand shock next? Risks loom large as US labour market is weakening (recession-like) and US private credit market (~USD2tn) — the key 2020s lender—is facing liquidity issues. This could dampen not just global tech valuations, but also AI capex a la dot-com era,” it said.
The brokerage noted that global risk-off sentiment can hurt Indian equities, as 35% of BSE 500 stocks face micro issues (IT, FMCG and more), while 40% are expensive cyclicals (autos, industrials, and more) which are prone to macro risks. “This warrants caution despite two years of flat returns,” it added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
