IT Stocks: The beating of IT stocks continued on February 12 also. Due to this, the IT index crashed by 5 percent to 33,495.35 points. Coforge’s shares fell the most by 6 percent. This is the lowest price of the share in the last four months. Shares of Infosys, TCS, LTI Mindtree, Wipro crashed up to 5 percent.
Impact of job report on IT stocks in America
The job report in America had an impact on IT stocks. On February 11, shares of software companies also fell in America. In fact, jobs in America increased more than expected in January. Due to this the unemployment rate fell to 4.3 percent. This indicates stability in the labor market. This means that the US central bank Federal Reserve can keep the interest rate unchanged for the time being.
Big fall in US software stocks on February 11
After the jobs report, Microsoft’s shares fell 2.2 percent on February 11. Alphabet declined 2.4 percent. The S&P 500 Software index fell 2.6 percent. Last week also there was a big fall in IT stocks. The reason for this was Anthropic’s new AI tools. It is believed that these tools are capable of doing many of the tasks that IT companies currently do. This means that the revenue of IT companies may be affected in future.
Investors fear about the future of IT companies
The continuous fall in IT stocks indicates that there is fear in the market regarding the future of software companies. Investors believe that AI is now ready to replace engineers. This can happen especially in Indian IT companies. However, Darshan Rathod, COO of Multify, said, “I believe investors’ reaction to IT stocks is based on emotion rather than logic.”
Fundamentals are not bad, the reason for the decline is emotional
Pranav Kumar, Founder and CEO of PlusCash, said that the reason for correction in IT shares on February 12 is not fundamental weakness but sentimental. There is a fear that advanced AI platforms will impact the traditional services of IT companies. He said that due to this there is selling in IT stocks, especially largecap IT stocks.
There may be a change in the business models of IT companies
Rathore said, “It is true that AI tools today can write code, fix bugs and create systems faster than before. Because of this, investors feel that IT companies will not need more engineers in the future. If the need for employees remains less, then the cost structure will change. The effect of change in cost structure will be visible on the valuation of shares of software companies. But, we have to differentiate between fear and truth. A distinction will have to be made.”
AI is very powerful, but cannot replace humans
He said that AI is quite powerful, but it is mainly a productivity tool. It helps engineers work faster and more effectively. Because of this, engineers do not have to do the same work again and again. He said that this can improve the margins of software companies. He believes that AI cannot take responsibility.
IT service industry is not going to end
He said that the world’s big companies work on complex, old and more customized systems. These systems require human decisions, business understanding, and accountability. If something major goes wrong, the algorithm cannot be held legally responsible. He said that he believes that the IT services industry is not going to end. When something becomes cheaper and more efficient, its demand increases.
Currently advised to be cautious regarding IT shares
D Vithalani, technical analyst at Bonanza, said investors need to be cautious about IT stocks in the short term. Till the IT index regains strength after crossing the important resistance level, investors can use ‘sell-on-rise’ strategy. He said that stocks like Wipro and Tech Mahindra are trading below important support levels, which is a sign of weak momentum.
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Selling pressure may be seen in case of recovery
He said that the RSI in the IT sector is in the oversold territory, which is a sign of a technical bounce. However, the broader trend is negative. Selling pressure may be seen if the index moves towards the resistance level. Therefore, investors need to be cautious at this time.
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At present investors can adopt the strategy of ‘sell-on-rise’
At current levels, the risk-reward in fresh short positions may remain limited until the Nifty IT index breaks the 33,000 level. If this happens it may move towards 32,000. On the contrary, if the index moves towards 35,500-36,500, it will be seen as a ‘sell-on-rise’ opportunity till the index regains the range of 37,500-38,000.
Disclaimer: The views expressed by the experts on Moneycontrol are their own views. These do not represent the views of the website or its management. Moneycontrol advises its users to seek the advice of certified experts before taking any investment decision.