Moneycontrol Pro Panorama | IT stocks and the swinging AI narratives

New business data points to the fact that Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that market participants should keep track of.

It does not take much to excite market participants nowadays. Market participants drove up shares of IT services firms on Tuesday, September 15, after AI leaders called for slowing the development of frontier AI technologies. The Nifty IT index is up 2.7 percent at noon on Tuesday. Separately, the 10-year US treasury bond yield has crossed 5 percent amid concerns around rising inflation, putting pressure on the US Fed to mobilize interest rates.

Rising bond yields are pushing up borrowing costs of technology firms, which are increasingly relying on debt markets to fund their large capital expenditures. Firms no longer have unbridled access to debt markets, as explained by Shishir Asthana here as new borrowings are coming at elevated costs.

Market participants in IT stocks are speculating that rising borrowing costs and a potential slowdown in development of frontier technologies can ease pressure on IT firms. AI and automation are altering the global technology landscape, inducing deflationary pressure on the traditional business of the IT services firms.

Yet, there is no evidence till now that the firms are reducing investments in AI. In fact, the annual AI and related capital expenditure is estimated to exceed $1 trillion from next year.

“Despite their pronouncements, all three are on course to spend billions more on building more powerful AI in the quest for AGI (Artificial General Intelligence) and Superintelligence,” writes Prosenjit Datta on the calls for a slowdown in AI development by Dario Amodei of Anthropic, Sam Altman of OpenAI and Elon Musk (SpaceXAI).

Pertinently, the AI-led reset in the technology and business landscape of IT services firms is unlikely to reverse. Clients are slowly moving from pilot projects to AI deployments. This is reshaping the IT services industry. Generative AI and agentic AI are driving deeper productivity upside and increasingly reducing the human effort requirement.

“AI is shifting the foundation of IT Services/BPOs from geo-arbitrage (as cost of agent is the same in any region) to intelligence arbitrage — the difference between cost of humans and AI agents,” market watchers at Jefferies stated in a note after interacting with experts from an AI focused IT services firm.

Of course, IT services firms are adapting to the changing business landscape by repositioning their service offerings and reskilling employees. Rising AI deployment, requirement of technology stack modernisation and cost efficiencies are additionally anticipated to create new opportunities for Indian IT.

That stated, the key now is execution. Firms that pivot to newer technologies faster can overcome the pressure on traditional business earlier than rivals. Agility and willingness to endure short-term pain by sharing automation benefits with clients will help IT firms.

Talking of IT stocks, Coforge eased in Tuesday trade even as the firm’s leadership team tried to assuage investor concerns around the recent boardroom exits. You can read our take on recent developments at the firm here.

Investing insights from our research team

LIC — Product mix shift, margin expansion offer expansion levers

Firm expansion, margin levers at play for this housing finance firm

Deepa Jewellers: Can in-house manufacturing unlock the next leg of expansion?

What else are we reading?

BRICS after New Delhi: Can the Bloc reduce dependence without creating new vulnerabilities?

Does the BRICS declaration promise political and business advantages to India?

The RBI may be running out of reasons to look through inflation

What SEBI's new Closing Auction Session proposals mean for F&O traders

For Coforge, boardroom shake-up is an unnecessary distraction

Chart of the Day: Spot electricity prices climb sharply on firm demand

Using Whatsapp’s free AI tool for trading – Part II

An AI apocalypse or a false alarm?

How high might natural gas prices go? (republished from the FT)

Foreign market participants prefer US stocks to Treasuries as debt worries grow (republished from the FT)

BRICS: Too relevant to ignore, too consequential to dismiss

Leadership begins where knowledge ends: The long work within

The opportunity hidden in India’s relative neglect

MFs raise healthcare, capital goods allocation in August; consumer weight hits decade low

Technical Picks: HINDUNILVR, FSL, BSE, APOLLOHOSP, ACMESOLAR

We have a crack team of reporters writing on everything startups and tech. We are fans of their newsletter Tech3 that lands in our inboxes every weekday evening. You can catch up on the day's happening tech and startup stories, including news, scoops, and analyses. If you have not already subscribed to it, click on this link to sign up.

Thank you for subscribing to Moneycontrol Pro. Check out our offers page here for exclusive discounts on select brands and giveaways.

We would love to hear from you. For any feedback on the product and suggestions please click here. We promise to read your responses although we might not be able to reply to each one individually.