The Nifty IT index fell as much as 2.7% intraday before ending at 27,821, down 1.6% and the lowest closing level since May 15. The benchmark Nifty50 ended 0.2% lower.
“Indian IT companies were hammered due to Anthropic launching a new AI model that increased the risk to the revenue for domestic tech players,” said Kotak Securities senior vice-president Sumit Pokharna.
7th session of losses Anthropic’s new AI model renews investor fears amid a global tech rout. A cyclical recovery in Sept could provide the first sign of revival, analysts say
The newly launched model has higher capabilities than previous ones and the faster developments are increasing the pressure on application development and maintenance companies, Pokharna said.
Anthropic launched a Mythos class model, called Claude Fable 5, for general use on June 9.Sentiment was also hurt by a 2% fall in the Nasdaq Composite Index Wednesday, as investors globally see rising risk due to concentration in some front-end AI stocks and are looking to diversify and rotate into other AI-enabler stocks.“The IT sector is in uncharted territory, given the prolonged revenue weakness during a generational technology shift driven by AI,” said Kumar Rakesh, an IT analyst at BNP Paribas. “This makes it difficult to predict whether the worst is over.”
All constituents of the IT index declined on Thursday. LTM dropped 2.6% while Infosys fell 2.3%. Oracle Financial Services Software and HCL Technologies slipped over 1.5% each.
A cyclical recovery, possibly in September, could be the first sign of revival despite ongoing structural challenges; however, this recovery could be delayed depending on geopolitical tensions, said Kumar.
“Investors should avoid companies that are struggling to transition and instead be extremely selective,” he said. “Persistent Systems among midcaps, and Infosys and Tech Mahindra among large caps, are the preferred picks in the sector.”
So far this year, the Nifty IT index has slumped 26.6%. The benchmark Nifty50 is down 11.4%.
Despite improved valuations, the sector has not bottomed out as headwinds like AI disruption, likely rate hikes in the US and geopolitical turbulence continue to weigh on the sector. The outlook is cautious and selective, said analysts. “Pain periods do turn valuations attractive and staggered accumulation of Infosys, TCS, Tech Mahindra along with Coforge can be considered for a two- to three-year horizon,” said Pokharna.
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