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Indian Markets Take a Breach as AI Rally Loses Momentum

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  Published in Stocks and Investing on Saturday, December 13th 2025 at 5:53 GMT by moneycontrol.com

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Stocks Take a Breach as the Year‑Long AI Rally Loses Momentum

The Indian equity market delivered a bruising session on Tuesday, with the benchmark indices sliding into the red as investors pulled back from the high‑flying AI bets that had dominated the past year. The NIFTY 50 fell 0.4 % and the S&P BSE Sensex dropped 0.3 %, dragging most of the sector‑weights down with them. The dip comes at a time when the global “AI boom” that had seen valuations skyrocket is facing a pullback, and the impact is being felt most strongly in India’s technology and software sectors.

The Anatomy of the Decline

The day began with a jittery mood, as the Indian markets followed a similar trend in the U.S. and Europe. The U.S. Nasdaq Composite, which had been the rally’s engine for a large part of 2023, slipped by nearly 1 % after a sharp pullback in the shares of leading AI‑focused firms such as Microsoft, Nvidia and Alphabet. The broader S&P 500 also lost about 0.5 %. European stocks mirrored the sentiment, with the Euro Stoxx 50 losing 0.7 %. Indian stocks, which had been riding on the AI narrative for the better part of the year, were forced to adjust.

The market wrap highlighted a key theme: the AI hype, which had been a major driver of Indian tech stocks, was now facing a correction. The sense of “buy‑the‑high” began to wane as investors began to scrutinize the fundamentals of the companies that had enjoyed the AI euphoria.

AI Betting in India – Where Are the Gains?

The term “AI bets” refers to the heavy allocation that many investors had made in companies that were positioned to benefit from the artificial‑intelligence wave. This included both pure‑play AI start‑ups and more established IT service firms that were heavily investing in AI research, cloud services and data analytics.

The biggest winners in 2023 were:

• Wipro – The Indian IT giant had its market cap surge by more than 200 % after announcing a new AI‑focused revenue segment. The company’s CEO highlighted that AI would become the primary driver of the next 10 years of growth.

• Infosys – Another IT leader that had seen its stock double after unveiling a new AI consultancy practice and a partnership with an international cloud‑provider.

• Tata Consultancy Services (TCS) – The company reported a 30 % rise in revenue last quarter, with AI‑enabled solutions accounting for a large portion of the growth.

• HCL Technologies – While less dramatic than Wipro or Infosys, HCL had benefited from a 15 % jump in AI‑related service revenue and a partnership with a global AI lab.

• Tech Mahindra – The company’s AI portfolio gained traction after it launched a joint‑venture with an AI‑focused venture firm.

These gains were largely fueled by expectations of a sustained boom in AI-driven business services, cloud adoption, and automation across industries. In early 2023, many analysts were bullish that AI would be the “next engine of growth” for India’s IT sector, and investors followed suit.

Why the Pullback?

The correction, however, has been precipitated by several converging factors:

1. Global Valuation Concerns – As U.S. Treasury yields climbed in the summer, the appetite for high‑growth, high‑valuation stocks – many of which were AI‑related – began to fade. This has translated into a broader risk‑off sentiment that has spilled over to India.

2. Earnings Season Pressure – Several of the leading Indian IT firms reported earnings that were slightly below market expectations, casting doubt on whether AI revenue will continue to grow at the projected pace.

3. Profit‑Taking After a Rally – After a 30‑plus percent rally, a number of large positions were closed. This profit‑taking wave is normal after such an intense surge.

4. AI Regulatory Speculation – There have been rumours of tighter regulations around data privacy and AI usage in the EU and the U.S. If these come to fruition, companies that rely heavily on data‑driven AI could see growth slowed.

5. Macroeconomic Headwinds – The Indian Reserve Bank (RBI) has signalled tightening of monetary policy to curb inflation. Higher interest rates typically put a damper on growth‑oriented sectors.

Impact on Individual Stocks

The article’s market wrap section specifically highlighted how the dip manifested across the board:

• Wipro fell 2.5 % after a cautious outlook from the CFO and a note that AI‑enabled projects would need to be priced more conservatively.

• Infosys slipped 1.8 % after a note that the company’s AI revenue growth had slowed in Q1, partly due to a slowdown in the banking sector’s IT spending.

• TCS dropped 1.2 % as analysts questioned whether the AI services segment could sustain the high revenue trajectory amid rising costs.

• HCL Technologies saw a 1.5 % decline, though it maintained a relatively bullish outlook for its AI-driven solutions.

• Tech Mahindra also slipped, but the fall was mitigated by a strong performance in the company’s “Digital” segment.

Global Context – What the Links Say

While the main article focused on Indian markets, it included several links to global AI coverage. One such link was a market wrap of the U.S. markets that explained how AI stocks had become a “bubble” and had seen significant profit‑taking. Another link pointed to a detailed piece on AI start‑ups that highlighted the risk of overvaluation in the AI space.

Further, there was a reference to a report on how AI is reshaping the global economy and the role of policy in shaping AI’s future. This contextual piece helped underscore that the correction in Indian AI bets is part of a larger global rebalancing that is not specific to India alone.

Outlook – Will AI Bets Recover?

While the immediate dip signals a pause rather than a permanent shift, analysts remain divided on the future of AI‑driven earnings for Indian IT firms. Some caution that the “AI‑first” mindset may lead to overvaluation, whereas others argue that AI is a structural change that will continue to be a major revenue driver.

The RBI’s policy path and the U.S. Treasury’s yield trajectory will continue to be key variables. A sudden easing of policy could revive the tech‑heavy growth narrative. However, if the yield rise and macro‑economic concerns persist, the AI bets may need to adjust to more realistic valuations.

In the short term, traders may look for buying opportunities on the “bottom” of the current dip, especially for firms with strong fundamentals and a clear AI‑enabled growth plan. The key will be to monitor earnings beats and the pace of AI adoption across industries.

Conclusion

The stock market’s latest wobble serves as a reminder that even high‑flying sectors such as AI are not immune to macro‑economic headwinds and valuation discipline. The Indian IT firms that captured the AI boom of 2023 are now being asked to demonstrate sustainable growth and realistic pricing of their AI services. For investors, this signals a time to reassess the AI narrative, weigh the fundamentals, and decide whether the current pullback represents a buying opportunity or a warning that the AI hype may have been overstated.