Sensex Plunges 1,048 Points as IT Stocks Trigger Sell-Off

Introduction: Markets End Week on a Low Note

Indian equity markets concluded the week with significant losses for the second consecutive session on Friday, as heavy selling pressure in Information Technology (IT) and metal stocks dragged the benchmark indices down. The BSE Sensex tumbled 1,048 points to close at 82,627, while the NSE Nifty 50 slipped 336 points to settle at 25,471, falling below the crucial 25,500 mark. The widespread sell-off reflected weak global cues and growing investor concerns over the technology sector's outlook.

A Weak Start and Persistent Selling

The trading session began on a weak footing, with the Sensex opening gap-down at 82,985, a fall of 690 points. The Nifty 50 also started the day significantly lower at 25,589. The negative sentiment persisted throughout the day, with market breadth remaining weak. Out of the 30 constituents of the Sensex, 26 stocks ended in the red, indicating broad-based selling pressure. The India VIX, a gauge of market volatility, rose by 4 per cent, signaling heightened nervousness among investors.

The IT Sector Collapse

The primary driver of Friday's market collapse was the severe downturn in the IT sector. The Nifty IT index plunged 5 per cent, marking its steepest weekly fall in a year with an 8 per cent decline. This rout erased nearly ₹3 lakh crore in market capitalization from the sector over the week. The sell-off was led by IT heavyweights, with Infosys, Tata Consultancy Services (TCS), HCL Technologies, Wipro, and Tech Mahindra emerging as the biggest losers on the Nifty.

The trigger for this sharp correction was a global technology sell-off, fueled by concerns about potential business disruption from advancements in Artificial Intelligence (AI). This was reflected in the overnight performance of American Depository Receipts (ADRs) of Indian IT firms, where Infosys ADR fell by a steep 9.8 per cent and Wipro ADR dropped 4.6 per cent.

Broader Market Underperformance

The negative sentiment was not confined to large-cap stocks. Broader markets also came under intense pressure, underperforming the benchmark indices. The Nifty MidCap index slipped 1.31 per cent, while the Nifty SmallCap index registered a decline of 1.58 per cent. The advance-decline ratio was heavily skewed towards sellers at 1:4, highlighting the lack of buying interest across the market.

Sectoral Performance Overview

While the IT sector was the worst hit, other sectors also traded with significant losses. The Nifty Metal index fell by 2 per cent, followed by the Nifty Media index which declined by 1 per cent. The Nifty FMCG index also closed 0.8 per cent lower. Only a handful of stocks, primarily from the banking sector like State Bank of India and Axis Bank, managed to post modest gains against the tide.

Influence of Global Markets

The downturn in Indian markets was in line with weakness across global equities. Wall Street experienced its worst session of the month, with technology stocks leading the decline. The Dow Jones Industrial Average fell 1.34 per cent, the S&P 500 lost 1.57 per cent, and the tech-heavy Nasdaq Composite dropped 2.03 per cent. This global risk-off sentiment was exacerbated by investor caution ahead of the release of key U.S. inflation data.

FII and DII Activity

Interestingly, institutional investor data from earlier in the week showed a different trend. On February 11, Foreign Institutional Investors (FIIs) were net buyers of equities worth ₹108.42 crore, while Domestic Institutional Investors (DIIs) purchased shares worth ₹276.85 crore. FIIs had been net buyers for five consecutive sessions, indicating that the sharp sell-off represented a rapid shift in sentiment towards the end of the week.

Market Analysis and Outlook

Analysts attribute the sharp correction to a confluence of factors, led by the AI-led disruption fears that have rattled the global tech industry. The significant drop in the ADRs of major Indian IT firms served as a clear warning sign. According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, while the IT sector may take longer to recover, market support is likely to come from sectors with strong earnings growth momentum, such as automobiles, financials, and capital goods. The market is expected to remain volatile in the near term as investors digest the implications of the global tech rout and await fresh domestic triggers.

Conclusion

In summary, the Indian stock market witnessed a severe sell-off on Friday, driven primarily by a collapse in IT stocks amid weak global sentiment. The Sensex and Nifty closed the week with substantial losses, erasing investor wealth and highlighting the market's vulnerability to international cues. Moving forward, market participants will closely monitor the stability of global technology stocks and look for signs of sustained domestic earnings growth to regain confidence.