The Death of Indian IT Has Been Greatly Exaggerated

In my 25 years of watching markets, I’ve learned one thing: panic sells newspapers, but it rarely makes for good investment decisions. Right now, everyone’s talking about the “death” of Indian IT. The index has crashed 11-12 per cent in just a month, and social media is aflame with doomsday predictions. AI is coming, they say, and it’s going to wipe out our IT services sector. Pack it up, game over.[EasyDNNnews:PaidContentStart]

But here’s what caught my eye: when I ran some back-of-the-envelope calculations, I realized the market is essentially pricing these companies to grow at barely 3 per cent annually. Think about that for a moment. The market is assuming that future cash flows from these businesses will be almost negligible. In my quarter-century of analysing equity market, I’ve seen this movie before. And it rarely ends the way the panic-mongers predict. Just four years ago, thermal power companies were being written off as dinosaurs. Climate change, renewable energy, ESG concerns—the sector was supposedly finished. Yet here we are, with many of those same companies staging remarkable comebacks because India still needs power.

The Indian IT sector has survived the dot-com crash, adapted to the cloud revolution, and thrived despite the rise of SaaS platforms. Each time, the doomsayers predicted the end. Each time, these companies evolved and emerged stronger. Let me be clear: I’m not saying AI won’t disrupt the sector. It absolutely will. The traditional manpower-intensive model is under pressure. Clients are demanding that productivity gains from AI be passed on as cost savings. Margins will likely compress in the short term as companies shift from headcount-based billing to outcome-based pricing.

But here’s what the panic merchants are missing: someone needs to implement all this AI technology at enterprise scale. Someone needs to integrate it with existing systems, customize it for specific industries, and manage the transition. That’s where Indian IT companies come in. They’re not just service providers; they’re system integrators who understand both technology and business processes.

While everyone’s obsessing over IT stocks, look at what’s happening across the rest of the Indian market. Earnings growth in the Nifty 50 may be flat, but 22 out of 27 broader sectors are showing double-digit growth. Small-Cap stocks are crushing it, with highly liquid smaller companies growing earnings at 30%.

Domestic tech companies—the ones serving Indian consumers and businesses—are thriving. They’re insulated from global headwinds and benefiting from India’s digitalization story. Travel tech, Logistics, fintech—these companies are expanding market share while trading at reasonable valuations. This is what we call a stock picker’s market. The broad indices might be going nowhere, but individual opportunities are everywhere if you know where to look.

Speaking of opportunities, can we talk about PSU Banks? Strong earnings, improving asset quality, and yet they’re trading at valuations that seem to ignore all the progress. The market’s selective pessimism never ceases to amaze me.

The current IT stock decline might well be a classic contrarian opportunity. Many quality companies are now trading at historically attractive valuations simply because the market has extrapolated short-term fears into long-term fundamentals. Additionally, as India continues signing trade deals and reducing its risk premium, foreign institutional investors will likely return. India’s domestic growth story remains one of the most compelling in the world.

The next phase of wealth creation won’t come from chasing whatever’s hot on Twitter. It’ll come from identifying businesses that can navigate change and adapt to new realities. The companies that figure out how to harness AI rather than be disrupted by it—those are the ones that will emerge stronger. Yes, the “AI Ghost” has spooked the market. But in my experience, when everyone’s running scared, that’s precisely when you should be paying closest attention. Stay invested, stay rational.

RAJESH V PADODE
Managing Director & Editor

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