A sharp selloff in technology stocks has pushed the Nifty IT index into its steepest monthly decline since the 2008 global financial crisis, as fears around artificial intelligence disruption rattled investor confidence.With Tuesday’s 6% decline, the Nifty IT index has plunged over 21% in February alone, marking its worst monthly fall since the 2008 global financial crisis, according to an ET report. The trigger this time is not only macroeconomic weakness but also concerns about potential disruption to traditional IT services.Anxiety intensified after AI startup Anthropic said its Claude tool can help streamline COBOL code, raising fears over long-standing revenue streams for technology companies. The announcement sent shockwaves across global tech stocks, with IBM shares plunging 13% overnight — the company’s worst single-day selloff in about 25 years.During the latest trading session, IT stocks fell as much as 8%, with Coforge, Persistent Systems and HCLTech leading losses, declining about 7-8%. Infosys, Tech Mahindra, Mphasis and Tata Consultancy Services dropped roughly 4-6%, while the Nifty IT index tanked 6%.Following the correction, the Nifty IT index now trades at an eight-year low relative to the Nifty 500, drawing attention from contrarian investors searching for value opportunities.
Cheap valuations alone may not be enough
Market experts cautioned investors against rushing into the sector despite lower valuations.“The sector is in a flux along with heightened fear. If the growth risks do not materialise, there is scope for meaningful returns. However, clarity on long-term growth is essential before becoming decisively positive. In a sector which is facing disruption, cheap valuation alone will not suffice,” S Naren, ED and CIO at ICICI Prudential AMC told The Economic Times earlier.Alok Agarwal, Head Quant and Fund Manager at Alchemy Capital Management, said the sector’s weakness predates current AI-related concerns, noting that earnings growth over the past 3, 5 and 10 years has largely remained in single digits or barely reached double digits.He said the underperformance reflects commoditisation of services, pricing pressure and sluggish demand from key Western markets. Adding AI disruption on top of these trends could further weaken earnings visibility.High dividend yields and attractive free cash flow yields may appear supportive but remain backward-looking indicators, he added. If growth weakens further, cash generation could come under pressure, making such yields less sustainable. Until companies demonstrate clear strategies to pivot towards AI enablement or move up the value chain, the risk-reward balance may remain unfavourable even over a four- to five-year horizon.
Technical indicators point to further downside risk
Technical analysts said market signals continue to favour caution.Anand James, Chief Market Strategist at Geojit Investments, said oscillators had earlier turned oversold with signs of positive divergence, but the latest breakdown pushed the index below the February 13 reaction low of 31,422, with momentum indicators favouring further downside. He identified 29,961 as the nearest support level, followed by 28,800 and 27,200 in case of deeper declines, while 30,300 intraday and 31,300 on a closing basis remain key reversal levels and 36,200 acts as major resistance.Sachin Gupta, VP Research at Choice Broking, said the index entered a clear bearish phase after breaking down from a Head and Shoulders pattern on the weekly chart. The fall below the crucial 10-month low of 30,918 confirmed a structural trend reversal, while the breach of the 61.8% Fibonacci retracement level and a negative crossover of key moving averages — commonly referred to as a Death Cross — suggests the earlier buy-on-dips strategy has shifted to sell-on-rise.He sees further downside towards the 29,300–28,700 zone unless a strong global trigger, particularly stability in the Nasdaq, improves sentiment.Ajit Mishra, SVP at Religare Broking, said the index has formed a pattern of lower highs and lower lows, signalling weakening momentum. Immediate support is seen near 29,600, with a major support zone around 26,300. Any rebound towards 33,000–34,000 could attract fresh selling pressure, and he advised traders to avoid fresh long positions and instead look for shorting opportunities on rebounds.
More pain or opportunity ahead?
The valuation discount in IT stocks is evident, but uncertainty around AI-led disruption continues to cloud the outlook. If technological changes prove incremental, the sharp correction could eventually create long-term opportunities. However, if demand for traditional services weakens materially, the downturn may persist.For now, experts recommend a wait-and-watch strategy as investors look for clearer signs of growth stability and sector adaptation.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
