Why the US and Indian markets are treading red?

The recent market movement in the US is what analysts call “Anthropic shock” while the global markets were already on the edge due to interest rate uncertainty, a massive tech driven sell-off has happened and has led to a cross market linking effect on the Indian market as well.

The US Catalyst: AI "Angst" Hits Wall Street

Yesterday and today, the US markets witnessed a "valuation reset." The Nasdaq Composite fell by over 2%, while the Dow Jones slipped back from a psychological 50,000 mark.

The "Anthropic" Factor: The main reason of the trigger was the new ai tool launched by anthropic (Makers of Claude ai) called “Claude co-work” and this tool demonstrated abilities in automating complex legal and data related tasks which in turn caused the investors to panic sell-of traditional software, property service and logistics stocks. People feared it was a fall of the SaaS software (Software as a service).

Investors are increasingly concerned that the AI bubble has peaked, especially following the resignation of Anthropic’s Safety Chief, Mrinank Sharma. Her departure has led to widespread speculation that the company's latest tool may be unsafe; after all, if the head of safety considers the technology a risk, the market is bound to agree.

The resignation of Zoë Hitzig , a top researcher at open ai emphasized on how Open ai is incorporating ads into its Chat bots and this move shows a monetization-at-all-cost motive rising above the core idea of getting ahead of the problem Ai would create. She pointed out how ads can act as a way of manipulation towards people who share even their most sensitive aspects on Chatgpt. All of this has resulted in the sell of Ai related stocks.

The cross market affect

The Indian market (Sensex and Nifty) felt this most acutely in the IT Sector.

The IT Bloodbath: Since Claude Cowork and other agentic ai are focusing on eliminating white color works. Top companies such as TCS, Infosys and Wipro saw a fall averaging 4-6%.

Since Claude Cowork and agentic ai are focused on eliminating white color works and the resignation are based on the fact that the tools are unregulated, investors believe that the Indian IT model which are heavily reliant on human efforts are at risk of being replaced and hence the top company stocks such as TCS, Infosys and Wipro have seen a fall of 4 - 6%.

When the US market is volatile the foreign investors (FII) tend to take their money out of emerging markets such as India and opt to make their position safer by investing in safer options.

How is the money being rotated?

It can be seen that people are moving from the software side of things to the hardware side of things such as the physical chips and power plant which are essential requirements in the ai domain and in India people are choosing boring and safe options such as gold and silver over volatile and exciting options as people are yet to gain clarity on the tech shifts happening.

So, as investors lose the profit margin capabilities of tech companies they are rotating into industries that build transport and power things as they are buying “boring” utility stocks and energy providers. Nuclear and grid tech companies are seeing good inflows.

And companies in the regional level engaged in chemicals and transportation have low P/E ratios making them cheaper and safer options for now.

Purple: S&P 500 Utilities, Green: S&P500 Energy, Blue: S&P500 IT

What we learn is that this is just a phase as we’ve seen the AI trends in the past (such as the 2024 incident) correcting itself and aiming for growth later.

The sudden sell-offs can be seen as the prices coming down from the expensive side to being much more fair as the companies in both India and US remain performing in a healthy manner.

This can also mean the clearing out of overhyped and weak companies leading to more growth room for much stronger and reliable companies.