Indian IT stocks set to lose $50 billion in worst week since pandemic on AI fears

By Vivek Kumar M and Nandan Mandayam

Feb 13 (Reuters) - Indian IT shares were headed for their worst week since March 2020 on Friday, losing about $50 billion in market value in a rout sparked by worries about the impact of AI on the sector.

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

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.

The Nifty IT .NIFTYIT index fell as much as 5.2% on Friday before paring losses to roughly 1.7% by 1 p.m. IST.

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 J.P. Morgan 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."

Indian IT losses on Friday were led by a 2.4% drop in industry leader Tata Consultancy Services TCS.NS, while Infosys INFY.NS was down 2.2% and HCLTech HCLT.NS dropped 1.2%.