A stock index comprising Tata Consultancy Services Ltd. and Infosys Ltd., has lost about $226 billion since its peak in December 2024 as AI developers including OpenAI and Anthropic PBC released AI models capable of infiltrating traditional software and outsourcing businesses.
But Anthropic CEO Dario Amodei’s call for curbs on future artificial intelligence developments, also backed by OpenAI CEO Sam Altman and SpaceXAI CEO Elon Musk, could now trigger a short squeeze in Indian tech stocks as investors bet the breakthrough will take longer. Shares of U.S. technology companies including Nvidia Corp. fell on Monday on concerns about a potential slowdown in spending.
BloombergInvestors will have a chance to react to the impact of the artificial intelligence debate on Indian tech stocks when markets reopen today after a local holiday on Monday.
Read more: Slowdown in AI trading hits Nvidia, SoftBank and SK Hynix as global tech stocks fall up to 10%
“Any talk about regulatory restrictions on the use of AI could actually have a positive impact” on Indian tech stocks, said Deven Choksey, managing director at investment advisory firm DRChoksey FinServ. “As the narrative shifts from uncontrolled development to regulated and responsible use of AI, it may be possible to cover short positions, supported by new purchases of shares of leading IT companies.”
Valuations give investors another reason to think. The NSE Nifty IT index remains 37% below its all-time high and is trading at about 16 times forward earnings estimates, two standard deviations below its five-year average, according to data compiled by Bloomberg. This makes the sector more sensitive to any improvement in sentiment. Read more: US market: Goldman Sachs expects Fed rate hike amid inflation fears
“Talks of a slowdown in AI, coupled with other macro factors, particularly a steeper yield curve and a stabilizing US dollar, could lead to a near-term recovery in Indian IT services stocks,” said Gary Tan, portfolio manager at Allspring Global Investments. “These factors favor cash generating companies that trade at relatively undemanding valuations, characteristics shared by many large-cap Indian IT services companies.”