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Market Update - Wednesday, 04 Feb

Not a day goes by without a major story playing out, and today the spotlight was firmly on IT services. The American AI company Anthropic, which operates with only 2100 employees and carries a market cap of approximately 350 billion dollars, has smashed IT services companies across the world.

It seems that many existing firms have not kept up the pace required to counter this kind of AI capability. This resulted in a massive impact on the market, with companies like Infosys and TCS losing 7 to 8% of their market cap in just one day.

While this was the shocker of the day, the rest of the market remained reasonably stable. It is the second day after digesting the US-India deal, and so far there have been no fine-print surprises.

• The current markets remained quiet today, with the Nifty still digesting these moves at 0.19%.

• Other indices showed more movement, with Nifty Junior up 0.65%, Mid-caps up 0.6%, and Small-caps up 0.76%.

• Nifty Bank also rose 0.33%. Gold is moving up at breakneck speed, returning to 1,56,000 from 1,36,000 with a 2.4% move today.

• Silver also moved up 4.75%, though it appears silver may take more time to consolidate while gold looks more aggressive.

• Interestingly, smaller micro-cap companies, especially those with an export orientation, have suddenly started to do well.

Other Market Triggers

• The Nifty heat map shows a distinct red block in IT services, with HCL Tech, Wipro, Tech Mahindra, Infosys, and TCS all smashed down.

• On the Nifty Next 50, LTIM was hit hard along with HAL and Naukri, while Divi's Lab was down 2.5%.

• On the positive side, Adani continues to rise as the market assumes it has cleared previous issues.

• PFC and Chola Finance also performed well.

• The mover of the day was Avanti Feeds, a big exporter, which clocked 11.6% today and 35% over two days after a long lull.

U.S. Market Updates

• Global markets also faced a tough day. The NASDAQ was down 1.5% and the S&P 500 fell almost 1%. PayPal dropped 20%, while Intuit, Accenture, Booking Holdings, and Adobe fell between 7% and 10%.

• Even creative leaders like Adobe are finding it difficult to keep pace with new-age companies.

• Major tech players like Nvidia, Microsoft, Meta, Google, and Amazon all saw moves down, though Palantir surprisingly rose 6.8%.

• Some of these may be part of the Weekend Investing US stock strategy, though these are not recommendations.

What to watch next ?

• The IT fall raises a larger question about whether technology development will lead to significant deflation. As technology improves productivity, there may be a loss of labor requirement, potentially making things cheaper.

• Conversely, these developments require enormous energy and natural resources like copper and silver, causing those asset classes to ramp up quickly.

• There will likely be a mix-and-match scenario where some items are extremely inflationary while others are in deep deflation.

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