IT Stocks Crash Update: AI uproar in IT stocks in the stock market, know how it created an uproar?

IT Stocks Crash: On February 24, a huge fall was seen in the shares of Indian IT companies for the fifth consecutive day. Nifty IT index fell 3.33% in morning trade. New claims related to Artificial Intelligence (AI) have increased investors’ concerns that it could impact the business models of traditional IT companies.

Which stocks fell the most?

IT companies were among the top losers on Nifty 50. Shares of HCL Technologies fell 3.9% to Rs 1,370. Infosys shares fell 3.5% to Rs 1,281.5. TCS shares fell 3.1% to 2,592.5. Tech Mahindra was also trading at ₹1,400, down 2.8%. Wipro shares were trading 2.7% lower at Rs 200.2. LTIMindtree, a company outside the Nifty index, also fell 2.4% to 4,716. IT stocks have declined by 10% to 20% in the first two months of this year.

Why is concern increasing due to AI?

American AI company Anthropic claims that its “cloud code” tools can significantly reduce the cost and difficulty of modernizing legacy software systems. This work is a large part of the revenue of traditional IT service companies. Investors fear that if AI starts doing this work faster and at lower cost, it may put pressure on the revenue and margins of Indian IT companies.

brokerage opinion

A day earlier, brokerage firm Jefferies cut the ratings and target prices of several IT stocks. The brokerage said that AI can cause structural changes in the IT sector. The share of managed services may decrease, while the share of consulting and implementation may increase.

Jefferies has downgraded Infosys and HCL Tech to ‘Hold’. TCS, LTI, Mindtree and Hexaware have been downgraded to ‘underperform’. The brokerage has also reduced its target price from 28% to 33%.

CLSA’s different perspective

However, CLSA has taken a more balanced view on IT stocks. The brokerage says that the concerns related to AI have been exaggerated to some extent. According to the brokerage, there has been no significant change in client spending, deal structure and service mix. CLSA has identified stocks like Infosys, Tech Mahindra, Coforge and Persistent Systems as its favorite stocks. However, due to valuation pressure their target price has been cut.