Infosys, TCS to HCL Tech: AI slowdown calls send Nifty IT pack 5% higher

Indian IT stocks have been one of the biggest casualties of AI boom, having lost 21 per cent on a year-to-date basis.

IT stocks: Shares of beaten-down Indian technology services companies faced a significant uptick in Tuesday's trading session as calls to slow the pace of artificial intelligence development are seen as benefiting them. 

 

The Nifty IT pack rallied 5.06 per cent to the day's high of 30,386 as all index constituents gained. LTIMindtree emerged as the top performer following a 6.7 per cent rise. Index heavyweights such as Infosys, Tata Consultancy Services, HCL Technologies and Wipro also added 6-4 per cent.

 

Tech Mahindra rose 6 per cent while Persistent, Mphasis, Coforge and Oracle Financial Services Solutions (OFSS) were also trading with sharp gains.  

 

 

 Indian IT stocks have been one of the biggest casualties of the AI boom, having lost 21 per cent on a year-to-date basis; a slowdown in AI spending and advancement is seen as having a positive impact on these companies.  "A more measured AI development cycle could provide enterprises greater visibility on technology choices, reducing near-term obsolescence concerns and encouraging customers that had adopted a wait-and-watch approach to resume AI and digital spending. This should be incrementally positive for Indian IT, particularly across AI implementation, cloud transformation, governance and cybersecurity," said Kunal Bajaj, analyst and Shreya Mehra, associate - technology at Choice Institutional Equities. 

Anthropic Chief Executive Officer Dario Amodei, in a lengthy essay shared on X on Saturday, called on AI companies to slow the rate at which they advance model capabilities amid mounting fears of the misuse of artificial intelligence. Both Elon Musk, who runs xAI, and Sam Altman, Chief Executive Officer of OpenAI, endorsed his views.

 

Altman also said the company would not proceed with an IPO this year, citing safety concerns. 

Over the weekend, Amodei wrote that in six to 12 months, AI agents "could be capable of taking over the entire internet, potentially causing hundreds of billions of dollars in damage." Separately, OpenAI's Altman said in an interview that the risks of human extinction posed by AI were "unacceptable", stated a Reuters report. READ MORE  

Should you buy IT stocks?

Ajit Mishra, senior SVP research at Religare Broking, however, expects the impact on IT stocks to be short-lived, with a material impact unlikely in the near term. 

 

"The investments by IT companies, as well as their product pipelines and deal wins, have largely been focused on the AI segment. This call is unlikely to completely change the stance we have been taking around the evolving landscape for IT companies. In fact, I doubt that this can potentially happen because of the massive investments that have already gone into AI," he noted.

 

For IT companies, he said that the damage over the last two quarters is at least not getting significantly worse. But for any meaningful recovery, the trend needs to reverse, and that's not happening. "One should, therefore, be patient when it comes to investing in IT, particularly with a two-to-three-year time horizon. One can look at quality names to accumulate, whether in AI or AI-related themes." 

Vinit Bolinjkar, head of research at Ventura, also believes this looks like a tactical relief bounce rather than a structural turnaround, resting on a sentiment shift rather than any change in the demand environment. 

 

The market may also be reading the development only one way: slower progress at the AI frontier eases the obsolescence overhang for traditional services, but it can just as easily delay the AI transformation budgets the sector is currently chasing, since the same force that reduces disruption risk also slows the monetization opportunity, he concurred. 

 

"For this to become a durable re-rating, the sector needs visible recovery in client budgets, sustained margin expansion and consistent deal conversion over the next two to three quarters."

 

Among specific stocks, Bolinjkar said that within the broader IT and digital engineering universe, large-cap anchors such as TCS and Infosys offer a balanced risk-reward profile through resilient order books and meaningful AI revenue contributions. Outside the services pack, specialized ER&D plays like Tata Technologies are showing genuine traction, while in the mid-sized companies, he likes Persistent Systems for its organic execution and record deal intake, while Coforge offers strong order-book visibility. 

 

Disclaimer: Views and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.