Indian IT stocks are moving in a different direction from their global technology peers, with the Nifty IT index climbing more than 2% in intraday trading to touch a nine-month high of 33,616.20 before giving up gains. The rally saw the index rise by over 750 points from its previous close, with major stocks including Mphasis, Persistent Systems, HCL Technologies, Tata Consultancy Services (TCS) and Infosys supporting the upward move. As reported by The Financial Express, this contrasting performance comes at a time when investors are reassessing their exposure to technology companies, particularly those linked to AI infrastructure investments. The Nifty IT index has gained more than 18% over the past month, marking a sharp recovery from its position as one of the weaker-performing sectoral indices until September.
Global financial markets experienced their worst crash since 2020 as artificial intelligence-linked stocks plunged amid fears of tougher regulation following the Democrats' victory in the US midterm elections. The Nasdaq dropped 5.5% in its biggest daily decline in 19 months, while the S&P 500 fell 4.4% and the Dow Jones lost 3.4%, or more than 1,800 points. The Nasdaq-100 declined 6.4%, erasing about $2.3 trillion in market value, according to latest market reports. The tech-heavy index wiped off $1 trillion in combined market value from the Magnificent Seven - Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms and Tesla. Nvidia shares plunged 9.3% while Advanced Micro Devices dropped 17.3%, with the Philadelphia Semiconductor Index crashing 12.2% in one of its steepest single-day declines on record. As reported by The Economic Times, South Korea's Kospi, which was seen as the face of the sharp volatility around the AI frenzy, also crashed more than 8% at one point, touching a nine-month low of 4,911.28 and triggering a 20-minute trading halt.
Domestic brokerage firm Anand Rathi believes Indian IT companies could emerge as beneficiaries of the rising capital expenditure burden on global technology giants, as investors increasingly favour asset-light businesses with strong free cash flow (FCF) generation. The brokerage sees attractive risk-reward opportunities in Indian IT stocks, with Tech Mahindra, LTIMindtree, and Mphasis among its top picks. According to Anand Rathi, the AI infrastructure buildout was becoming increasingly capital-intensive amid accelerating demand, with the brokerage estimating that combined capital expenditure by hyperscalers will approach $730 billion in CY26, representing growth of more than 80% year-on-year. The top six Indian IT companies are trading at 16 times and 15 times their estimated FY28 and FY29 earnings, respectively, compared with their 15-year average one-year forward price-to-earnings multiple of 17.9 times. These stocks also offer free cash flow yields of 6.5% and 7.2%, alongside dividend yields of 5% and 5.4%, respectively.
The recent rally in Indian IT stocks reflects a rotation of capital out of the AI infrastructure trade, as investors seek alternatives to companies directly involved in building AI infrastructure. According to Manav Medewala, Research Analyst at Mirae Asset Sharekhan, "Indian IT services companies, with their asset-light models, no direct exposure to data-centre risk, de-rated valuations, low foreign ownership and strong cash payouts, have emerged as a preferred alternative for investors seeking technology exposure." Unlike companies investing heavily in AI infrastructure, traditional IT service providers earn revenue through technology consulting, software development, maintenance and digital transformation services to clients. As reported by Sunny Agrawal, Head-Fundamental Research at SBI Securities, "Likely slowdown in capex towards AI and pursuant rotation of money out of AI trades globally is leading to inflows into traditional IT services business."
Artificial intelligence is fundamentally reshaping employment patterns across economies with large workforces, according to a new study from the International Monetary Fund's latest 'Regional Economic Outlook' for Asia and Pacific. The report, drawing on 40 million online job postings across 19 Asian economies, reveals that employer demand in occupations more exposed to AI has fallen by nearly 10% since the launch of ChatGPT in November 2022. As reported by Business Standard, this decline has stabilised despite rapid improvement in AI capabilities, but the effects of reduced hiring are likely to unfold only over time. The IMF study cautions against interpreting the stabilisation as evidence that displacement risks have receded, with the report emphasizing that the full impact of AI on employment may take several years to materialize.
