AI Rally Loses Steam: Nifty IT Slides 6% Amid Global Tech Correction

Indian information technology stocks witnessed heavy selling on Wednesday, with the Nifty IT index plunging nearly 6% as a global software sector correction spilled over to domestic markets.

At around noon, the Nifty IT index was trading 5.79% lower at 29,323.2, making it the worst-performing sectoral index on Dalal Street. The sharp decline came after the index had rallied nearly 8% over the previous three trading sessions, prompting investors to lock in gains amid weakness in global technology shares.

Tata Consultancy Services (TCS) emerged as the biggest drag on the sector, tumbling around 9% and becoming the top loser on the Nifty50 index. Infosys fell nearly 5%, while Tech Mahindra and HCLTech declined 4% and 3.78%, respectively.

The selling was not limited to large-cap stocks. Mid-cap technology companies also came under pressure, with Coforge, LTIMindtree, Mphasis, Oracle Financial Services Software and Persistent Systems falling between 3% and 6%.

Across broader indices, technology companies dominated the list of losers. LTIMindtree, TCS and Persistent Systems were among the worst-performing stocks in both the Nifty 200 and Nifty 500 indices.

Global Software Stocks Trigger Selloff

The weakness in Indian technology shares followed a sharp correction in global software stocks, particularly in the United States, where investors booked profits after a strong AI-driven rally.

The iShares Expanded Tech-Software Sector ETF declined 3%, erasing nearly half of the gains recorded during the previous session. Several leading software companies witnessed steep declines, with Atlassian plunging 8%, while HubSpot and Okta fell 7% each.

ServiceNow and Intuit lost around 6%, while Rubrik and Workday dropped 5%. Technology heavyweights including Microsoft, Salesforce, Oracle, Datadog, Cloudflare and Palantir declined between 3% and 4%.

The broad-based weakness reflected growing concerns that valuations in parts of the software sector had become stretched following the recent surge linked to artificial intelligence spending expectations.

Broker Downgrades Add To Pressure

Sentiment towards Indian IT stocks was further dented after the American Depository Receipts (ADRs) of Infosys and Wipro fell sharply on Wall Street.

Infosys and Wipro ADRs declined by as much as 8% after several brokerages downgraded software stocks and cut target prices amid concerns over demand visibility and valuation levels.

Accenture, often considered a bellwether for the global IT services industry, also came under pressure. Its shares fell 7% intraday to as low as $183.41 after closing at $196.59 in the previous session. The stock continued to trade more than 6% lower during US trading hours.

Other IT services firms including Cognizant Technology Solutions, Gartner and EPAM Systems also recorded significant declines, highlighting the widespread nature of the correction.

AI Optimism Takes A Breather

The latest correction comes after software stocks staged a strong recovery in recent months on hopes that rising artificial intelligence adoption would boost spending on enterprise software and digital transformation services.

Earlier concerns that AI could disrupt traditional software business models had gradually faded as companies positioned themselves to benefit from the technology shift. Investor sentiment also received support from comments by Nvidia executives, who highlighted the growing importance of software in enabling AI adoption across industries.

However, after a sharp rally, investors appear to be reassessing valuations and booking profits, resulting in a broad pullback across software and technology stocks globally.

The sharp decline in Indian IT shares also weighed on benchmark indices, contributing significantly to the fall in the Sensex and Nifty during Wednesday's trading session. With technology stocks accounting for a substantial weight in major indices, any prolonged weakness in the sector could continue to influence broader market sentiment in the near term.