Why IT stocks are rising as AI chip stocks fall
What's the story
The Indian IT sector has shown resilience amid a global sell-off in chipmakers. The BSE IT index surged 3%, defying the broader Asian tech market's downward trend. This comes as concerns mount over the high funding requirements of the artificial intelligence (AI) boom. India lacks pure-play AI companies, which makes its IT sector less vulnerable to these global shifts.
Market influence
Fed's policy decision on Wednesday to impact IT sector
The rally in the Indian IT sector also comes ahead of the US Federal Reserve's policy decision on Wednesday.
The Fed is expected to keep rates unchanged, which could have a significant impact on the IT sector. This is because a large portion of their revenue comes from the US market.
Investors will be closely watching the Fed's assessment of the Iran war's inflationary impact on the US economy.
Market downturn
Global stocks fall as AI investment skepticism grows
Meanwhile, global stocks have fallen amid skepticism over the returns from massive investments in AI. This has led to a sell-off in chipmakers from Wall Street to Asia.
The MSCI Asia Pacific equity index fell as much as 3.6% to its lowest since May, heading toward a technical correction.
South Korea's KOSPI Index was the worst hit, plunging 10% as fears of circular funding and increased competition from China grew stronger.
Tech impact
Technology stocks across Asia affected by Wall Street sell-off
The sell-off in chipmakers on Wall Street has also affected technology stocks across Asia. Benchmarks in Japan and Taiwan fell by over 3%.
Nasdaq 100 futures also dropped by 0.5%, indicating further weakness for technology companies.
However, the software sector's sentiment is different as any company that meets estimates this quarter could be rewarded by investors after a series of profit warnings from major players like IBM and Accenture.