Benchmark indices traded lower on Friday as a sharp sell-off in information technology stocks outweighed gains in financial shares, with investors booking profits after the sector's recent rally and shifting back towards global AI-linked technology plays.
The Nifty IT index dropped nearly 3% in early trade, ending its five-session winning streak and emerging as the worst-performing sector on Dalal Street. TCS fell 3.5%, Infosys declined 3.4%, Persistent Systems slipped 3.2%, while Mphasis, Wipro, LTIMindtree and HCLTech also posted losses. Tech Mahindra and Coforge traded lower as investors locked in gains following the sector's strong July rally.
The decline in IT stocks came after the Nifty IT index surged around 15% this month, putting it on course for its strongest monthly performance in six years. Analysts attributed Friday's weakness primarily to profit booking after the sharp run-up.
Global technology sentiment also shifted overnight after Microsoft and Amazon reported strong quarterly earnings and reiterated confidence in AI spending, easing concerns over capital expenditure and reviving interest in semiconductor and AI-related stocks. The rebound spread across Asian markets, with South Korea's KOSPI, Japan's Nikkei and Chinese technology stocks posting strong gains.
According to Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, technology stocks globally have been witnessing exceptional volatility driven by quarterly earnings, investor expectations and speculative trading. He noted that South Korea's market was seeing particularly sharp moves, led by significant gains in Samsung and SK Hynix.
Market analysts said the renewed optimism surrounding AI investments prompted investors to rotate back into global semiconductor and hardware companies, reducing the short-term appeal of Indian IT services firms that had benefited earlier from the global AI sell-off.
Despite Friday's decline, analysts maintained that the broader outlook for Indian IT remains positive, supported by expectations of stable technology spending, improving earnings momentum and continued foreign institutional investor interest. The current weakness is largely being viewed as a tactical correction following the sector's recent outperformance rather than a change in its long-term investment outlook.
