Indian IT Stocks Fall as IBM's $70bn Wipeout Signals Software Weakness
A $70 billion selloff in IBM triggered a 2% drop in India's IT index as investors braced for a broader enterprise software spending slowdown.
IBM shares suffered their worst single-day drop since 1968 on Tuesday, falling 25.2% to $217.07 and wiping nearly $70 billion from its market capitalisation. The preliminary results triggered an immediate sell-off in Indian IT equities on Wednesday, with the Nifty IT index dropping roughly 2%. This starkly underperformed the broader Indian market, where the Nifty 50 and Sensex both gained about 0.5%.
The American technology giant reported preliminary second-quarter revenue of $17.2 billion, falling short of Wall Street estimates of $17.86 billion. Adjusted earnings per share landed at $2.93, missing the $3.02 consensus. Performance was mixed across divisions, with software revenue growing 5% year-on-year, consulting revenue remaining flat, and infrastructure revenue declining 7%.
IBM Chairman and Chief Executive Officer Arvind Krishna attributed the miss to a rapid shift in enterprise budget allocations. Customers are diverting technology spending away from software and toward artificial intelligence hardware, such as servers, memory chips, and storage. "We did not adapt and move quickly enough," Krishna said, noting that changing AI dynamics caused delays in closing several large enterprise deals.
The fallout extended well beyond IBM, hitting the Indian outsourcing sector that relies heavily on global enterprise software and consulting demand. TCS led the declines among Nifty IT constituents with a 2% drop. Infosys, Wipro, Persistent Systems, and LTIMindtree all fell more than 1%, while HCLTech, Coforge, Mphasis, Tech Mahindra, and L&T Technology Services also traded lower.
The anxiety spilled over into US-traded receipts as well, with Infosys and Wipro American Depositary Receipts declining 4% and 3%, respectively. Other global technology peers, including Accenture, Microsoft, Salesforce, Cognizant, and Autodesk, saw their share prices fall between 1.5% and 3%.
Earnings in focus
For market participants, IBM's stumble raises immediate red flags about the health of global enterprise technology budgets. The shift toward AI infrastructure spending suggests traditional software and consulting pipelines may face prolonged scrutiny from chief information officers reallocating capital.
Investors are now positioning ahead of the upcoming quarterly earnings season for Indian IT companies. The primary focus will be on management commentary regarding client technology spending patterns and demand visibility for the coming quarters.
