Key facts
- Indian IT stocks extended their losing streak to seven consecutive sessions.
- Anthropic launched a new AI model, Claude Fable 5, increasing investor fears of revenue disruption.
- The Nifty IT index fell 1.6% on Thursday, reaching its lowest close since May 15.
- Global tech stock declines, including a 2% drop in the Nasdaq Composite, contributed to the sell-off.
- Analysts remain cautious, citing AI disruption, potential US rate hikes, and geopolitical tensions.
Indian IT stocks extended their losing streak to a seventh consecutive session on Thursday, marking the longest period of decline since September 2025, as fresh concerns over artificial intelligence's impact on revenue intensified among investors. The Nifty IT index saw an intraday drop of up to 2.7%, ultimately closing 1.6% lower at 27,821, its lowest level since May 15. This decline occurred amidst a broader downturn in global tech stocks, with the Nasdaq Composite Index falling 2% on Wednesday.
Analysts attribute the sell-off to Anthropic's launch of a new AI model, Claude Fable 5, which possesses higher capabilities than previous versions. This rapid advancement is seen as increasing pressure on application development and maintenance companies, according to Sumit Pokharna, senior vice-president at Kotak Securities. The concentration of risk in certain front-end AI stocks has also prompted global investors to diversify and rotate into other AI-enabling companies.
Kumar Rakesh, an IT analyst at BNP Paribas, described the sector as being in "uncharted territory" due to prolonged revenue weakness during a significant technological shift driven by AI, making it difficult to predict when the downturn will end. All components of the Nifty IT index experienced declines on Thursday, with LTM dropping 2.6% and Infosys falling 2.3%. Oracle Financial Services Software and HCL Technologies also slipped over 1.5% each.
While analysts suggest a potential cyclical recovery could emerge in September, they caution that geopolitical tensions might cause delays. Investors are advised to be selective, favoring companies that are effectively transitioning amidst the AI revolution. Preferred picks include Infosys and Tech Mahindra among large caps, and Persistent Systems among midcaps. Despite improved valuations, headwinds such as AI disruption, potential US interest rate hikes, and geopolitical turbulence continue to weigh on the sector, leading to a cautious outlook. Staggered accumulation of stocks like Infosys, TCS, Tech Mahindra, and Coforge is recommended for a two- to three-year investment horizon.