Information technology stocks came under heavy selling pressure on Thursday, dragging benchmark indices lower as concerns over a sharp selloff in US technology shares, the long-term impact of artificial intelligence and the prospect of prolonged high interest rates hurt investor sentiment.

The Nifty IT index declined 2.67 per cent to 27,525.80, making it the worst-performing sectoral index on Dalal Street. The weakness also weighed on the Sensex, with IT heavyweights emerging among the biggest losers.

HCL Technologies led the losses among Sensex constituents, falling 2.85 per cent, while Infosys declined 2.66 per cent. Tech Mahindra dropped 1.65 per cent and Tata Consultancy Services (TCS) slipped 1.48 per cent.

Selling pressure extended across the broader IT pack, with Oracle Financial Services Software (OFSS) falling 3.75 per cent. Persistent Systems, Coforge, LTIMindtree and Mphasis also registered losses, while Wipro declined 1.50 per cent.

US Tech Selloff Spills Over To Indian Markets

The decline in Indian IT stocks followed a sharp correction in US technology shares overnight.

Wall Street witnessed its steepest selloff in several weeks on Wednesday, with the tech-heavy Nasdaq Composite falling nearly 2 per cent. The downturn was led by profit-booking in artificial intelligence-related stocks that had rallied strongly in recent months.

AI chip giant Nvidia lost 3.7 per cent, while semiconductor company Broadcom fell 5.1 per cent, triggering broad-based weakness across the technology sector.

The negative sentiment quickly spread to Asian markets, including India, as investors turned cautious amid concerns about global growth and elevated valuations in technology stocks.

AI Concerns Return To The Fore

Fresh worries about the long-term impact of artificial intelligence on the IT services industry also weighed on sentiment.

While AI has opened up new opportunities for technology companies, investors are increasingly concerned that automation and productivity gains could reduce demand for traditional outsourcing services over time.

Global brokerage HSBC warned that AI-driven deflationary pressures could continue to affect the growth outlook of IT services companies for another six to eight quarters.

The brokerage also flagged increasing merger and acquisition activity as a potential risk and suggested that sector valuations could eventually move closer to price-to-earnings multiples of 13 to 14 times.

Higher US Inflation Adds To Pressure

Investor concerns were further aggravated by the latest inflation data from the United States.

US consumer inflation rose 4.2 per cent year-on-year in May, reaching its highest level in three years, largely due to higher energy prices linked to the conflict in the Middle East.

Persistently high inflation reduces the likelihood of interest rate cuts by the US Federal Reserve and raises the possibility of rates remaining elevated for a longer period.

Technology stocks are particularly sensitive to interest rates because much of their valuation is based on expectations of future earnings. Higher rates reduce the present value of those expected cash flows, making growth-oriented companies less attractive to investors.

For Indian IT firms, which derive a substantial portion of their revenues from the United States, developments in the US economy and weakness in global technology stocks remain key factors influencing investor sentiment.

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