Infosys, TCS, other IT stocks plunge up to 8% after global tech selloff led by Anthropic's AI tool

IT stocks plunge

• Indian IT stocks fell, wiping out Rs 2 lakh crore in value over AI competition fears.
• Nifty IT index fell over 7 percent; Infosys, TCS, and others led sector losses
• Global tech stocks also dropped after Anthropic launched new AI legal tools

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The shares of Indian IT companies plunged in trade on February 4, accompanying global peers amid concerns that artificial intelligence can intensify competition.

The sharp fall in the share prices pushed the Nifty IT index down more than 7 percent to hit an intraday low of 35,809.50 on Wednesday. The index then pared some losses to close at 36,345.65. This is the biggest single-day fall for the index since March 2020.

Indian IT stocks plunge:

Heavyweight Infosys shares plunged more than 8 percent earlier during the day, before closing over 7 percent lower. LTI Mindtree and Coforge shares, which also dropped 8 percent intraday, fell around 6 percent at close.

Tata Consultancy Services (TCS) shares closed 7 percent lower, while Persistent Systems, Mphasis and HCL Technologies shares fell 6 percent. Tech Mahindra and Wipro shares fell around 4 percent each.

The sharp selloff erased Rs 2 lakh crore from the total market capitalisation of India's top IT stocks.

The heavyweight IT stocks are leading losses on benchmark indices Sensex and Nifty. The Nifty IT index is currently the top losing sectoral index on the markets.

Info Edge, the parent company of Naukri.com, also declined around 6 percent in the morning trading concerns amid job concerns in the industry.

Why are IT stocks plunging today?

Wall Street ended yesterday's session sharply lower as investors remained concerned that AI was creating more competition for software makers, after Anthropic’s launch of a legal tool for its Claude AI chatbot.

AI developer Anthropic launched plug-ins for its Claude Cowork agent last week that can automate tasks across legal, sales, marketing and data analysis. The move has triggered worries of an impending AI-fueled disruption of the data and professional services industry, which were once seen as major beneficiaries of the AI era, according to traders and analysts.

“Anthropic launched new capabilities for its Cowork to the legal space, heightening competition,” Morgan Stanley analysts including Toni Kaplan wrote in a note on Thomson Reuters, as reported by Bloomberg. “We view this as a sign of intensifying competition, and thus a potential negative," they said.

AI heavyweights Nvidia and Microsoft saw their share prices fall almost 3 percent each, while Alphabet dropped 1.2 percent ahead of its results on Wednesday. Amazon shares declined 1.8 percent ahead of its Thursday results. Salesforce and Adobe fell around 7 percent each.

Tech-heavy Nasdaq declined 1.43% to 23,255.19 points, while the Dow Jones Industrial Average declined 0.34% to 49,240.99 points.

Investors have recently remained worried about the impact of AI on competition. The worries were retriggered yesterday after Anthropic’s launch of a legal tool for its Claude AI chatbot. “We're looking at a lot of software names that are seen as companies that may well be disrupted when we start to see the advancement of artificial intelligence. We're seeing a lot of software companies across the spectrum get hit,” Reuters quoted Art Hogan, chief market strategist at B. Riley Wealth, as saying.

“The IT selloff in the US yesterday will drag the Indian IT index, too, constraining the rally in the Indian market. Since valuations continue to be high there is no fundamental support for a sustained rally,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

What lies ahead?

Anthropic’s launch of advanced AI automation tools, which heightened concerns about potential disruption to traditional software and IT services models, prompted investors to reassess the extent to which generative AI could automate core outsourcing and software functions, triggering broad-based selling across global tech stocks and the Nifty IT index, said Ajit Mishra – SVP, Research, Religare Broking.

"While the sector’s fundamentals remain intact, near-term sentiment is likely to stay volatile as markets gauge the impact on demand and margins. Investors may be better off avoiding aggressive positions until clearer signs of stability emerge," he added.

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