IT stocks see massive recovery from day's low as value buying emerges; Infosys, TCS lead rebound

IT stocks rise 440 bps from day's low as value buying emerges; Infosys, TCS see sharp recovery

• IT stocks rebounded after sharp morning losses on February 13
• Infosys, TCS, Wipro hit multi-year lows before partial recovery
• Nifty IT index rose over 4% from day's low after value buying

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IT stocks staged a sharp recovery on February 13 as value buying was seen in the battered stocks after they fell up to 6% in morning session on sell-off in the US due to the susceptibility of US companies to disruption by artificial intelligence.

Major IT players such as Infosys, Tata Consultancy Services, and Wipro were the worst-hit stocks in the Nifty 50 index. The Nifty IT index fell over 5% to an over 10-month low of 31422.60 points.

However, value buying was seen in the stocks with the ten-constituent Nifty IT index rising over 4 percentage points from day's low.

Frontline IT stocks like Infosys, TCS recovered 4-5 percentage points from day's low.

At a time when investors have been stressed about the impact AI would have on competition, a less-than-impressive quarterly update from Cisco Systems helped to sour the market on technology stocks broadly, Reuters reported.

However, investors saw value emerging in the shares with Nifty IT , the second-heaviest weighted index among 16, fell 8.2% this week, its worst showing in 10 months.

Shares of Infosys fell 7.5% to an over two-year low of INR 1,281.50. The stock was down for the third straight session and shed over 14% during this period. However, they pared most losses and were trading 1.2% lower.

Tata Consultancy Services shares declined 6% to hit an over five-year low of Rs 2,585 apiece. The stock was down for the third straight session, shedding over 13% during this period. TCS shares closed trading 2% lower at Rs 2,695 apiece.

Wipro fell nearly 5% to an over one-year low of Rs 209.01. The stock extended its losses for the third straight session and shed nearly 10% during this period. The IT major's scrip closed trading 2.2% lower.

Tech Mahindra fell nearly 5% to an over two-month low of Rs 1,464.40 and the stock was in the red for the third straight session. The stock lost almost 11% during this period. The stock closed trading nearly 0.2% lower.

Indian IT shares lost about Rs 4.5 lakh crore in market value in a rout sparked by worries about the impact of AI on the sector, reported Reuters.

The sell-off intensified following a tech-led slide on Wall Street overnight, where concerns about shrinking margins hit heavyweights such as Apple and pushed investors into safe-haven bonds ahead of key U.S. inflation data.

"The ongoing IT rout implies the market is pricing the risks of uncertainty over whether Indian software firms will be able to retain productivity gains and protect their revenues," said Hiren Dasani, chief investment officer for emerging markets at Whiteoak Capital.

"Nobody can say with confidence where IT business models will land," added Dasani, calling AI's potential to automate routine work and shorten delivery timelines "existential concerns".

The launch of a tool by tech startup Anthropic last month triggered a global tech sell-off and intensified concerns that rapid adoption of generative AI could upend India's $283-billion IT services industry.

For the week, the index is down 9.4%, its steepest drop since early March 2020 when COVID-19 gripped global markets

Sat Duhra, portfolio manager at Henderson Far East Income, said AI presents opportunities that Indian IT companies should tap into. "I think the companies probably haven't done the greatest job in terms of communicating how they turn that into an opportunity rather than a threat," Duhra said.

Analysts at JPMorgan flagged investor concerns that India's IT firms could miss growth targets as AI pushes clients to reallocate spending.

The brokerage, however, noted that it’s "overly simplistic" to assume that AI can automatically generate enterprise grade software and replace the value IT Services firms create across the cycle.

"IT Services companies remain the plumbers in the tech world, and if enterprise software/SaaS is rewritten on a bespoke basis by agents - it will need significant services plumbing to work in enterprise context and minimize AI slop."

Panic selling at this stage is not a good idea, said an analyst.

"Markets have fallen into a turbulent phase which will cause some panic among investors even while offering opportunities. The sell off in AI stocks in US markets was expected but the timing and extent of the sell-off was not known. The 2.04% decline in Nasdaq is not a crash. But if the downtrend continues it might pull the US market down. For the Indian market, this correction in AI stocks is a positive, because last year’s global rally was primarily an AI trade in which India, an AI laggard, couldn’t participate. So the unwinding of the AI trade, If it persists, is a positive from the Indian perspective. However, what is rattling the Indian market now is the massive sell-off in IT stocks, which is the second largest profit pool of India Inc. The real impact of the ‘Anthropic shock’ on the IT sector is yet to be ascertained. Panic selling in IT stocks at this stage may not be a good idea. Investors may wait and watch for the dust to settle," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.