Stocks in Indian IT companies were put under significant pressure this week following the reaction of the global markets to the introduction of a new artificial intelligence tool by US tech company Anthropic. The sell-off, which had been precipitated in foreign markets, spread throughout industries and struck Indian technology stocks with a vengeance by Wednesday morning.
Wiping out value and fueling investor worries once again about the pace of disruption by more advanced AI. This controversy started when one of the major AI developers, Anthropic, announced a collection of AI tools targeting corporate legal teams.
To promote it as a productivity solution for internal legal teams, the company launched the functionality as part of its AI assistant Claude. The tool is designed to be a language that simplifies legal procedures by automating repetitive processes such as reviewing contracts, checking non-disclosure agreements, performing legal summarisation, and drafting standard forms.
Anthropic made it clear that it is not aimed at substituting lawyers or offering legal assistance and that the output produced by the system must be checked by qualified personnel.
Even with these promises, the announcement shook the world markets. The move was construed by investors as a possible threat to established legal research and software service providers who frequently make large amounts of money off tools that serve legal teams.
Consequently, European legal and publishing companies dropped their share prices drastically. Large industry leaders like RELX Plc and Wolters Kluwer NV had over 10 per cent declines in their stocks after the announcement, and Pearson Plc fell too, a sign of a general nervousness in the sector.
The effect quickly reached the United States with businesses that are most closely connected with legal research and software services among the most affected.
The shares of Thomson Reuters, LegalZoom and London Stock Exchange Group plummeted by more than 12 per cent and the losses would later spill over to the broader software industry. Popular brands like PayPal, Expedia Group, EPAM Systems and Equifax and Intuit all fell by over 10 per cent, adding to an extensive selling spurt in technology and data stocks.
Two leading S&P indexes that monitor software, financial information and exchange-related corporations lost almost 300 billion dollars in market valuation, highlighting the magnitude of investor fear of the fast evolving AI.
By Wednesday, when Indian markets opened, the sentiment had already become weak because of Wall Street falls overnight. Stocks of leading Indian IT sector companies such as Infosys, Tata Consultancy Services, HCLTech, Tech Mahindra and Wipro were performing worse with falls as high as six per cent in the early trading in the Bombay Stock Exchange.
The fact that investors responded to perceived threats by new AI-led competition motivated the selling pressure, which was primarily generated by global cues.
According to market analysts, investors had larger concerns with how fast the traditional software and service firms could keep pace with the speed of artificial intelligence innovation. Art Hogan, the chief market strategist at B. Riley Wealth Management, said that it was the growing skepticism about the companies that might get shaken by the rapid advancements in AI.
It will be an issue, he said, if things are proceeding as fast as we are being told by OpenAI and Anthropic. Any one of the companies that might be disrupted is all kinds of software application names and investors are beginning to go after them.
In spite of the fluctuation in the market, analysts point to the fact that a short-term decline in stock prices does not mean the failure of the Indian IT sector.
Cloud computing, automation and AI-led services, have already been highly invested by most major Indian technology companies to augment their products and compete with offerings across the world. The Indian IT sector is still among the most competitive sectors in the country with a strong pool of talent, scale and customer relationship.
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What the contemporary market response is a pointer to, though, is the fact that investors are more concerned about the ability of companies to adopt emerging technologies and change the business model.
Disclosure on long-term plans on adoption of AI, partnerships and product innovation can be important in regaining confidence, and valuation in months to come.
