IT stocks go into a tailspin as US data adds to AI disruption

On Thursday, the Nifty IT index in India experienced a significant decline, falling over 5% for the second time in just under ten days, closing at a 10-month low. This downturn was largely attributed to unexpectedly strong US job data for January, which raised concerns about the impact of artificial intelligence (AI) on the traditional IT sector. As all ten constituents of the index plummeted between 4% and 7%, investors reacted to fears that advancements in AI could disrupt established IT business models. Notably, major players like Infosys and Tech Mahindra saw substantial losses, collectively wiping out ₹1.56 lakh crore in market value. Analysts suggest that while AI presents productivity opportunities, its disruptive potential is causing uncertainty among investors. Despite the recent sell-off, some experts believe the market's reaction may be exaggerated and that Indian IT firms could adapt and pivot towards AI integration over time, though this transition may take a while. Currently, the sector is trading at relatively high valuations, prompting caution among investors until more attractive entry points emerge. The Nifty IT index closed at 33,160, nearing a crucial support level, as bearish positions build up amid ongoing market volatility.