AI concerns push Nifty IT ETFs down 21% in February, while Nasdaq ETFs fall just 5%: here’s why

The Nifty IT index closed February about 20% lower, while the tech-heavy Nasdaq fell just 4% in the same month. Experts pointed to structural differences in the composition of the index as a reason for the divergent performance of ETFs benchmarked to the two indices.“The Nasdaq includes hardware, platform and product-led technology companies including AI chip makers, cloud hyperscalers and software product companies that form the core of the AI ​​value chain. The top companies in the AI ​​value chain generate revenue directly through IP ownership, product sales and platform economics, which translates into strong earnings and premium valuations,” said Dhanshree Jadhav, Analyst – Technology at Choice Institutional Equities.

Structural difference between Nasdaq and Nifty IT:

On the other hand, the Nifty IT index is dominated by service-led IT players who act as “integrators rather than creators” of AI, the analyst explains. “AI-led automation is raising near-term concerns about pricing pressures, productivity pass-through to customers and slower revenue growth as companies seek to capture efficiency gains. This has depressed growth visibility and valuations despite healthy deal pipelines. The Indian IT sector faces near-term headwinds as AI begins to disrupt the traditional labor arbitrage model. The current divergence reflects a broader shift in business models, with companies that proactively invest in AI-led platforms, solutions and capabilities better are positioned to deal with the evolving environmental risks,” Jadhav said.

Ajit Mishra, SVP Research at Religare Broking, said the difference 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 monetizing AI directly through leadership in semiconductors, cloud infrastructure and software ecosystems, positioning AI as a significant revenue multiplier,” he added.

However, Indian IT companies largely operate on a services-driven model. Investors fear that advanced AI tools could automate large parts of coding, testing and maintenance work, potentially putting pressure on billing models and margins, Mishra explains, adding that sentiment weakened further after Anthropic introduced Claude Code, raising concerns in the global IT services space and contributing to the weakness of companies like IBM.

What should investors do?

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

“While the short-term pressures are clear, AI-led digital transformation can also create meaningful long-term opportunities for Indian IT companies as companies accelerate modernization. Investors should keep a close eye on how these technology developments translate into deal pipelines and order flows in the coming months, although the sector may remain under pressure in the near term,” Mishra said.

Several 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-SBI ETF IT and Axis Nifty IT ETF, fell 20-21% in February, according to NSE data.

Motilal Oswal Mutual Fund’s Nasdaq 100 ETF is down just over 5% over the same period. Motilal Oswal Nasdaq Q 50 ETF fell just 1% in the same month despite AI concerns.

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