“The Nasdaq comprises hardware, platform and product-led technology companies which include AI chip makers, cloud hyperscalers and software product firms which form the core of the AI value chain. The top tier AI value chain companies monetize directly through IP ownership, product sales, and platform economics translating into strong earnings and premium valuations,” said Dhanshree Jadhav, Analyst – Technology at Choice Institutional Equities.
Structural difference between Nasdaq and Nifty IT:
On the other hand, the Nifty IT index is dominated by services-led IT players acting as “integrators rather than creators” of AI, the analyst explained. “AI-led automation raises near-term concerns around pricing pressure, productivity pass-through to clients, and slower revenue growth, as enterprises seek to capture efficiency gains. This has weighed on growth visibility and valuations despite healthy deal pipelines. The Indian IT sector is facing near-term headwinds as AI begins to disrupt the traditional labor-arbitrage model. The current divergence reflects a broader shift in business models, where companies proactively investing in AI-led platforms, solutions, and capabilities are better positioned to navigate the evolving risk environment,” Jadhav said.
Ajit Mishra, SVP of Research at Religare Broking, said that the divergence between the Nifty IT index and the Nasdaq‑100 Index largely reflects their different positions in the evolving AI ecosystem. He also added that US technology leaders view AI as a powerful new growth platform. “Companies such as Nvidia, Microsoft, and Alphabet Inc. are directly monetizing AI through semiconductor leadership, cloud infrastructure, and software ecosystems, positioning AI as a significant revenue multiplier,” he added.
Indian IT firms, however, largely operate on a services-driven model. Investors fear that advanced AI tools could automate large parts of coding, testing, and maintenance work, potentially putting pressure on billing models and margins, Mishra explained, adding that sentiment weakened further after Anthropic introduced Claude Code, which triggered concerns across the global IT services space and contributed to weakness in companies such as IBM.
What should investors do?
According to Jadhav, this phase should be viewed as an industry-wide reset toward structurally stronger, AI-integrated operating models rather than a permanent structural disadvantage for Indian IT in the AI era.
“While near-term pressure is evident, AI-led digital transformation could also create meaningful long-term opportunities for Indian IT companies as enterprises accelerate modernization. Investors should closely monitor how these technological developments translate into deal pipelines and order flows in the coming months, though the sector may continue to face pressure in the near term,” Mishra, meanwhile, said.
Several popular ETFs linked to the Nifty IT index, including Nippon India ETF Nifty IT, HDFC Nifty IT ETF, ICICI Prudential Nifty IT ETF, Mirae Asset Nifty IT ETF, Kotak Nifty IT ETF, SBI Mutual Fund-SBI ETF IT, and Axis Nifty IT ETF, declined 20-21% in February, according to data on NSE.
Motilal Oswal Mutual Fund’s Nasdaq 100 ETF meanwhile, fell a little over 5% during the same duration. Motilal Oswal Nasdaq Q 50 ETF fell only 1% during the same month, despite AI worries.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
