A rout in Indian software services stocks deepened, tracking a US tech selloff, after a report from Citrini Research amplified concerns about companies vulnerable to the growing influence of artificial intelligence.
The NSE Nifty IT Index fell as much as 5.3% on Tuesday — the most since August 2023 — as Citrini outlined a scenario in which firms including Tata Consultancy Services Ltd., Infosys Ltd., and Wipro Ltd. would see contract cancellations accelerate through 2027. Shares of these firms declined more than 3% each in Mumbai after the report.
India’s IT services firms have become the face of the ‘AI scare trade’ in Asia, even as peers across the region saw shares rise on optimism over hardware buildout. The gauge is down about 21% so far in February, on course for its worst month since 2003. That has wiped out more than $54 billion in market value as investors fear that AI tools like those released by Anthropic will drive down margins going ahead.
“The entire model was built on one value proposition: Indian developers cost a fraction of their American counterparts,” the report said. “But the marginal cost of an AI coding agent had collapsed to, essentially, the cost of electricity.” Citrini said its report was not a prediction, but a scenario that’s relatively underexplored.
The AI-scare has spread to new age technology companies. Eternal Ltd., the country’s biggest food delivery and quick commerce firm, fell 6% Tuesday, while Cartrade Tech Ltd., operator of marketplace for used cars, slipped 10%.
“Valuations of IT companies — which trade about 15-18 times their earnings — have come under scrutiny on AI-worry and its impact on growth,” said Aishvarya Dadheech, founder and chief investment officer at Fident Asset Management.
In comparison, new-age tech companies, though newly listed, trade at far higher valuations, he said. “This is starting to overlap now. So more than AI, it’s valuation that is getting questioned.”
Alap Shah, chief investment officer at Lotus Technology Management and co-author of the report by Citrini — a little-known firm founded by James van Geelen — said in a Bloomberg TV interview that semiconductors, data centers and foundation labs are key beneficiaries of the AI trade.
India’s $5.2 trillion market lacks direct plays on these themes, making some foreign investors look away from the market that’s valued at a premium to other Asian peers. The MSCI India Index trades at about 21 times its one-year forward earnings estimate, compared to a multiple of about 15 times for its Asia-Pacific counterpart .
Some investors, however, have argued that the doomsday predictions for Indian IT services might be overdone. They’re using the opportunity to add more on expectation that these firms will pivot to AI-embedded services.
Disclaimer: This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.
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