From IT Sell-off to Global Cues: Triggers Behind Sensex, Nifty Nosedive

Indian stock market indices, the BSE Sensex and NSE Nifty 50 on Friday dropped nearly 1% in early trade following overnight global cues and a continued heavy sell-off in IT stocks. At 11:00 AM, the Sensex was down 0.97% or 815 points at 82,859.28, while the Nifty 50 index was trading near the 25,543 level, down 1.03%.

Incidentally, the market drop came on Friday the 13th, a date considered unlucky by many traders, as it was the day the Black Friday crash of October 13, 1989 occurred.

According to market analysts, this decline was expected as GIFT Nifty indicated a weak start near 25,715, down about 143 points, reflecting a cautious undertone at the beginning of the session.

"Markets have fallen into a turbulent phase which will cause some panic among investors even while offering opportunities. The sell-off in AI stocks in US markets was expected, but the timing and extent of the sell-off were not known. The 2.04% decline in Nasdaq is not a crash. But if the downtrend continues, it might pull the US market down," said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.

In the previous trading session, the Nifty opened with a 55-point gap-down and remained under sustained selling pressure throughout the day.

"After a weak sideways-to-bearish movement in the first half, the index slipped to an intraday low of 25,752 before recovering marginally to close at 25,807.20. Immediate resistance is placed in the 25,900–25,950 zone, while key support lies between 25,650–25,700. The RSI at 53.87 signals neutral momentum with a mild bearish bias, indicating limited short-term upside potential," said Hitesh Tailor, Research Analyst at Choice Equity Broking Private Limited.

Among individual stocks on the Sensex platform, there were only a few gains led by Bajaj Finance (up 1.25%), followed by Maruti Suzuki (up 0.15%) and State Bank of India (up 0.14%). Among the losers, tech stocks led the pack with Infosys tumbling 4.81%, Tata Consultancy Services falling 3.53%, HCL Technologies down 2.71%, and Tech Mahindra off 2.31%. Eternal Limited also shed 3.64%.

Other losers included Tata Steel (down 1.78%), Hindustan Unilever (down 1.84%), Adani Ports & SEZ (down 2.13%), Mahindra & Mahindra (down 0.61%) and NTPC Limited (down 0.67%). Broader weakness was also seen in Power Grid Corporation of India, UltraTech Cement, Titan Company, InterGlobe Aviation, Trent Limited and Reliance Industries, which fell between 0.90% and 1.54%.

Technology stocks were among the worst hit, as the BSE Information Technology index dropped 3.45%, while the Nifty IT slipped 3.29% to 32,068.05. Most sectoral indices were trading in the red under selling pressure, with the Nifty Metal and Nifty Realty indices falling 2.88% each. Nifty Oil & Gas and Nifty Consumer Durables also declined, alongside modest losses in Nifty FMCG and Nifty Auto.

Broader markets also remained under pressure, with the BSE SmallCap Select Index falling 1.86% and the BSE MidCap Select Index declining 1.39%.

What Caused the Massive Sell-off?

1. Continued IT sell-off: Indian IT stocks have been on a downward path over the past 10 days following Anthropic’s release of 11 open-source plugins for "Claude Cowork", targeting workflows in legal, finance and marketing. Over the past month, the Nifty IT index has plunged more than 15%.

And not just India. In the US, tech-heavy Nasdaq Composite has also dropped over 4.6% in the past month. Alphabet Inc. shares are down over 8%, Microsoft is down 14.62%, and CRM giant Salesforce has declined 23.08%.

According to Vijayakumar, for the Indian market at least, this correction in AI stocks is a positive because last year’s global rally was primarily an AI trade in which India, an AI laggard, could not participate.

"So the unwinding of the AI trade, if it persists, is a positive from the Indian perspective. However, what is rattling the Indian market now is the massive sell-off in IT stocks, which is the second-largest profit pool of India Inc. The real impact of the ‘Anthropic shock’ on the IT sector is yet to be ascertained. Panic selling in IT stocks at this stage may not be a good idea. Investors may wait and watch for the dust to settle," he noted.

2. Weak global cues have also weighed on sentiment, with Asian markets such as the Hang Seng Index, Nikkei 225 and SSE Composite Index trading in the red. In the US, the Nasdaq Composite dropped over 2% on Thursday ahead of key inflation data due later on Friday, after stronger-than-expected January jobs numbers dampened hopes of an early Federal Reserve rate cut. The S&P 500 and Dow Jones Industrial Average also ended more than 1% lower.

3. Weakening rupee: The rupee weakened by 8 paise to 90.69 against the US dollar in early trade, pressured by a stronger greenback and subdued domestic equities, with forex traders noting that the firm dollar continued to weigh on emerging market currencies, including the rupee.

On the institutional front, FIIs continued their buying streak for the fifth consecutive session on February 12, purchasing equities worth ₹108 crore, while DIIs also turned net buyers, investing over ₹276 crore in equities.

"Amid persistent global uncertainties and heightened market volatility, traders are advised to maintain a disciplined and selective approach, focusing on fundamentally strong stocks on declines. Fresh long positions should be considered only if the Nifty sustains a decisive breakout above the 26,000 level, which would signal a more stable and meaningful improvement in overall market sentiment," said Tailor.

Technical Outlook

"Technically, after a weak opening, the market consistently faced selling pressure at higher levels. A bearish candle on the daily charts and weak intraday formations indicate further weakness," said Shrikant Chouhan, Head of Equity Research at Kotak Securities.

Adding that the short-term texture of the market is still positive:

"We believe that the 50-day SMA at 25,750/83,500 would act as a key support zone for traders. If the market manages to trade above this level, it could bounce back to 25,900–25,950/84,000–84,200. On the flip side, if it falls below 25,750/83,500, it could slip to 25,600–25,500/82,900–82,600. Buy Nifty between 25,600–25,500 and keep a stop loss at 25,400," he added.