Indian equity markets witnessed a sharp sell-off on Thursday, with benchmark indices reacting to weak global cues and heavy pressure on technology stocks. The BSE Sensex dropped over 800 points to 82,840.72, while the Nifty 50 slipped to 25,536.30 in early trade, reflecting widespread nervousness across sectors.
The primary trigger came from Wall Street, where the tech-heavy Nasdaq Composite declined 2.04% overnight. The fall followed profit booking in AI-linked stocks that had driven much of last year’s global rally.
Over the past year, investor enthusiasm around artificial intelligence pushed technology valuations to elevated levels. However, markets are now questioning whether earnings growth can justify those expectations. As valuation concerns rise, global investors are trimming exposure to technology-heavy portfolios — and Indian IT stocks are feeling the impact.
Stronger-than-expected US employment data has complicated expectations of early rate cuts by the Federal Reserve. With unemployment dipping marginally and economic momentum holding up, markets now expect interest rates to remain higher for longer.
Higher rates typically weigh on growth sectors like technology. Elevated borrowing costs can slow corporate spending, particularly on discretionary technology projects. Since Indian IT companies derive a significant portion of their revenue from US clients, any slowdown in American tech budgets directly affects their earnings outlook.
Beyond valuation concerns, investors are grappling with deeper structural questions about artificial intelligence. Traditionally, Indian IT services companies operated on a headcount-driven outsourcing model, billing clients based on manpower hours.
However, generative AI tools can automate coding, testing, documentation, and routine backend functions — tasks that previously required large engineering teams. While this improves operational efficiency and margins, it may also reduce billable hours if pricing models fail to evolve.
Clients are increasingly shifting toward outcome-based pricing rather than manpower-based billing. This fundamental shift creates uncertainty around revenue growth models for IT firms. Segments like maintenance, testing, and certain ERP implementations are particularly vulnerable to automation.
The rapid pace of AI advancement — sometimes referred to in markets as the “Anthropic shock” — has amplified fears that disruption may arrive faster than anticipated. Markets tend to react sharply to uncertainty, and reduced earnings visibility often leads to valuation compression.
Market strategists describe the current phase as turbulent but not a crash. Analysts suggest that while the unwinding of the global AI trade may create short-term pressure, it could eventually present selective opportunities for Indian equities.
From a technical standpoint, a sustained breach below the 25,650 level on the Nifty could open further downside, while holding above 25,750 may indicate stabilisation.
The recent 800-point fall in the Sensex is not rooted in a domestic economic crisis. Instead, it reflects global tech weakness, fading rate-cut optimism in the US, and rising uncertainty about AI’s impact on the IT services industry.
The key question now is whether this is a temporary valuation reset or the beginning of a deeper structural repricing of technology stocks. Until companies provide clearer guidance on deal flows, AI monetisation strategies, and margin outlook, volatility is likely to remain elevated.
For now, the message from the market is clear: when global technology stocks sneeze, Indian IT catches a cold.
