IT sector sheds weight in stock market indices as AI rises

Since the start of the year, shares of the five largest firms have seen sharp drops: TCS fell by 23.47%, Infosys 17%, HCLTech 14.74%, Wipro 17.14%, and Tech Mahindra 9.97%.

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The financial health and growth outlook of the companies have also taken a hit.

In contrast, the BSE Sensex gained 8.64% over the same period, illustrating the sector's struggle for investor confidence.

The financial health and growth outlook of the companies have also taken a hit, evidenced by their price-to-earnings (P/E) ratios hitting multiyear lows—TCS (23.7 P/E) and Infosys (24.4-P/E) are trading at their lowest levels in at least five years, while HCLTech (25.8 P/E) and Wipro (20.3 P/E) are at three-year lows.

Amit Chandra, vice-president of HDFC Securities, attributes the decline to a confluence of factors: "Automation, geopolitical uncertainties, weak discretionary spending and fewer number of big-ticket deals have impacted growth for the IT players and this led to decline in weightage." Discretionary spending, nonessential projects by clients, is a critical growth driver for the sector, and its pullback underscores client caution.