Between AI Anxiety and FII Return

The past fortnight was marked by several key developments. On Union Budget Day, markets came under heavy selling pressure after the unexpected increase in securities transaction Tax (STT) on derivatives, contrary to expectations that the government would reduce trading costs. The Budget-day sell-off was subsequently reversed following the much-awaited India-U.S. trade deal announcement. India is expected to eliminate import duties on a range of selected U.S. products, effectively allowing 0 per cent tariff access in certain categories.[EasyDNNnews:PaidContentStart]

In return, the U.S. has reduced elevated tariffs on Indian exports to roughly 18 per cent, improving market access. Markets rallied on trade deal optimism and the positive momentum persisted over the next few trading sessions, until U.S. jobs data once again unsettled investor sentiment. A stronger-thanexpected U.S. employment report showed payroll additions beating forecasts and unemployment edging lower, signalling a resilient economy. This reduced expectations of an early Federal Reserve rate cut, as policymakers are less likely to ease when growth and labour demand remain firm.

The market packed an entire cycle of emotions into just two weeks. A Budget shock, trade deal relief and an AI-led IT sell-off kept investors on edge, yet the return of FIIs helped the market stay resilient.

Information technology stocks initially declined, and a fresh development involving ‘Anthropic’ further triggered a bloodbath in the domestic IT sector. A severe correction in IT stocks dragged many leaders to 52-week lows, with some counters erasing gains and showing negative five-year returns. The sell-off was sparked after U.S.-based AI firm Anthropic launched enterprise automation tools capable of performing tasks such as coding support, document review, compliance checks and data analysis, work traditionally outsourced to Indian IT companies.

Investors feared that such AI systems could reduce dependence on large offshore teams, squeezing billable hours and margins of the labour-intensive outsourcing model. Despite bouts of volatility and weakness in IT heavyweights, benchmark indices showed resilience and ended the fortnight in green territory with modest gains. Broader indices also gained by around 2 per cent. The key support came from the return of foreign institutional investors (FIIs), who were net buyers in seven of the eleven trading sessions, breaking their prolonged selling streak. Overall FII outflows remained limited at about ₹1,400 crore.

Meanwhile, domestic institutional investors continued to anchor the market, providing strong liquidity support with inflows of nearly ₹9,800 crore. The combined effect of improving foreign flows and steady domestic participation helped the market absorb sectoral pressures and maintain a constructive undertone. Investor optimism was visible across several sectors, with the auto, power, Real Estate and healthcare indices registering notable uptrends. Overall sentiment in the domestic market has been gradually improving after nearly 15-16 months of weakness and consolidation. Will this translate into a sustained rally? Stay tuned for further insights that could shape the market’s future trajectory.

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