Indian technology stocks, including major players like Infosys Ltd, Tata Consultancy Services Ltd (TCS), HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd (TechM), are drawing significant attention following a sharp downturn in the US Nasdaq index. On June 5th, the Nasdaq tumbled over 4%, driven primarily by a sell-off in semiconductor companies such as Advanced Micro Devices Inc, Intel, Marvell Technology, and Broadcom.
AI Bubble Concerns and US Bond Yields Drive Sell-Off
The primary catalyst for the Nasdaq's decline appears to be mounting concerns that the global Artificial Intelligence (AI)-led market rally may be reaching a speculative peak. This sentiment was echoed across Asian markets on Monday, with South Korea's technology-heavy KOSPI index plunging nearly 8%, triggering a temporary trading halt, and Japan's Nikkei also opening sharply lower.
Adding to the market's unease are intensifying worries over rising US bond yields. These yields are dampening hopes for any near-term interest rate cuts by the Federal Reserve, which typically supports growth stocks like those in the tech sector. V K Vijayakumar, Chief Investment Strategist at Geojit Investments, suggested that a cooling down or reversal of the AI trade could trigger a reversal of Foreign Portfolio Investor (FPI) outflows from India, which has been at the receiving end of the AI-led rally.
Indian IT Stocks Show Mixed Signals
Despite the broader market slump, Indian IT stocks trading as American Depository Receipts (ADRs) in the US exhibited some resilience. Infosys ADRs climbed 2.34% in after-hour trading to $12.69, partially recovering from a 1.35% fall during the regular session. Wipro ADRs also advanced 1.45% to $2.1 apiece, adding another half-a-percent in after-hours trading.
However, the outlook for the broader market remains cautious. Antique Stock Broking recently maintained 'Hold' ratings on largecap IT services companies, favoring select midcap stocks like Coforge and Mphasis. Their analysis pointed to cautious commentary from US retailers, with benefits from tax refunds fading and macroeconomic uncertainties, including higher energy prices and geopolitical risks, persisting.
Geopolitical Tensions Add to Market Volatility
Beyond market fundamentals, escalating geopolitical tensions, particularly reports of Iranian strikes on Israel, are further contributing to investor caution. Ponmudi R, CEO of Enrich Money, noted that overall market sentiment remains cautious to negative in the near term. He highlighted that rising crude oil prices, continued FII selling, and weak global market performance are likely to keep volatility elevated. A de-escalation of geopolitical conditions could provide support for a gradual recovery in risk assets.