AI worries push Nifty IT ETFs down 21% in February, Nasdaq ETFs fall just 5%: Here’s why

The Nifty IT index closed nearly 20% lower in February, while the tech-heavy Nasdaq fell just 4% in the same month. Experts highlighted structural differences in index composition as the reason for the difference in performance of ETFs benchmarked on the two indices.

“Nasdaq includes hardware, platform and product-led technology companies including AI chipmakers, cloud hyperscalers and software product firms that form the core of the AI ​​value chain. Top AI value chain companies directly monetize through IP ownership, product sales and platform economics that translate into strong earnings and premium valuations.” Equities.

Structural Differences Between Nasdaq and Nifty IT:

On the other hand, the Nifty IT index is dominated by services-led IT players that act as “integrators rather than creators” of AI, the analyst explained. “AI-led automation raises near-term concerns around pricing pressures, productivity pass-through to customers and slower revenue growth, as enterprises seek to achieve efficiencies. This has put an emphasis on growth visibility and valuation despite a healthy deal pipeline. The Indian IT sector faces near-term headwinds as AI begins to disrupt traditional labor models. A massive shift in business models, where AI-led platforms, solutions And companies that actively invest in capabilities are better positioned to navigate the evolving risk environment,” Jadhav said.

Ajit Mishra, SVP of Research at Religare Broking said 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 see AI as a powerful new growth platform. “Companies like 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.

However, Indian IT companies mostly operate on a service-based model. Investors fear that advanced AI tools could automate large parts of coding, testing and maintenance, potentially putting pressure on billing models and margins, Mishra explained, adding that sentiment weakened further after Anthropic introduced cloud code, which sparked concern in the global IT services space and contributed to weakness at companies such as IBM.

What should investors do?

According to Jadhav, this phase should be seen as an industry-wide reset towards structurally sound, AI-integrated operating models rather than a permanent structural disadvantage for Indian IT in the AI ​​era.

“While near-term pressures are evident, AI-led digital transformation could 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 near-term pressures,” Mishra said.

Some of the 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-SBIET, SBI and AFITX fell 20-21% in February, according to NSE data.

Meanwhile, Motilal Oswal Mutual Fund’s Nasdaq 100 ETF lost a little over 5% during the same period. The Motilal Oswal Nasdaq Q 50 ETF fell just 1% during the same month despite AI concerns.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)