Tech Mahindra, TCS: Tech stocks tumble, BSE IT index falls 3%; what hurt the sentiment?

The BSE Information Technology index declined as much as 3% to 40,212.69 against the previous close of 41,486.39. 

At the close, the index stood at 40,428.31, down 1,058.08 points, or 2.55%.

All these stocks were trading with cuts in the range of 2%-4.5%.

One of the reasons behind the fresh leg of sell-off in the domestic IT counters could be a fall in chip stocks in the US market. 

Advanced Micro Devices shares fell nearly 10% on Wednesday after the chip company's revenue forecast failed to impress investors looking for a bigger windfall from the AI boom.

The information technology sector was the biggest sectoral decliner, falling 1.34%. 

“Qorvo, Advanced Micro, and Super Micro—those are three pretty big moves that are causing a little bit of angst and taking some of the bloom off the rose from the stellar print from Google last night,” Reuters reported, quoting Michael James, managing director of equity trading at Wedbush Securities, as saying.

Moreover, Microsoft on Wednesday predicted increased spending on artificial intelligence this quarter but slower growth in its cloud business Azure, signaling that big AI investments were not enough to keep pace with capacity constraints at its data centres.

Besides, investor sentiment took a hit as French IT consulting group Capgemini cut its 2024 revenue target for the second time this year on Wednesday, after continued weakness in some of its markets, especially manufacturing, hit its third-quarter sales.

The group, which offers services ranging from cloud and AI to enterprise management across a wide array of industries, had in July forecast a surprise fall in its annual revenue due to a downturn in the automotive and aerospace sectors.

It now expects its revenue to decline by between 2% and 2.4% on a constant currency basis, versus its previous forecast for a drop of 0.5% to 1.5%, said a Reuters report. 

"In a market that remains soft overall, we expect to deliver a similar growth in Q4," CEO Aiman Ezzat said in the earnings statement.