AI Pani hits Markets - Is this the beginning?

Markets Overview

Nifty has looked visibly unsettled over the last few sessions. Until about two days ago, the broader global narrative of an AI-led liquidation across markets was not really playing out in price action. But suddenly, in the last two or three trading sessions, we have seen tremendous pressure building up in the IT industry — not just in India, but globally. And it is not restricted to traditional IT companies alone. Any industry that is perceived to be materially impacted by artificial intelligence has witnessed sharp volatility. A meaningful number of stocks have entered a weak phase as investors attempt to price in what AI could mean for business models.

At this point, it is still not entirely clear what the ultimate margin impact of AI adoption will be. On one hand, productivity improvements could be enormous. On the other hand, pricing power and competitive intensity could change in unpredictable ways. The net margin outcome remains uncertain. For example, Bajaj Finance recently stated in its conference call that it is aggressively ramping up AI usage — and interestingly, the stock responded positively. This suggests that markets are rewarding companies that proactively articulate how they will use AI to enhance efficiency and growth rather than being disrupted by it. More companies will likely need to communicate clearly on this front to calm investor fears that AI could “consume” their core businesses.

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Friday the 13th brought a bloodbath to several sections of the market today. IT stocks continue to plummet downward, motivated primarily by overseas action where ADRs listed in those markets are dropping daily.

Consequently, local markets are pricing these stocks accordingly. Severe technical patterns are emerging on the IT front that look particularly bad.

Rebalance Update for the week