Indian IT: Dead or poised to thrive?

Summary: Twenty years ago, Indian IT was writing one of the great wealth-creation stories in Indian investing. Today the market is betting the story is over, and AI is the trigger. The professionals running the country's largest technology funds are betting it is not. Four of them sat down to explain why and what they think the market has most wrong. Twenty years ago, when this magazine published its first issue, Indian IT was writing one of the greatest wealth-creation stories in Indian investing history. Today, the market is betting that the story is over. The professionals who manage the country’s largest technology funds are betting that it is not. One side is right. The answer will define how millions of portfolios perform for years to come. The numbers driving the market’s pessimism are stark. In the last 12 months, the BSE IT index has fallen around 27 per cent, making it one of the worst-performing mainstream indices in the country over the last five and 10 years, erasing the majority of the gains the sector made. Stock prices imply the sector will grow at 0-2 per cent for years ahead, a dramatic step down from the 6-7 per cent it delivered before the pandemic and the high-teens growth it managed during the Covid years. The market is not pricing in a slowdown. It is pricing in near-stagnation. And the trigger is AI. Indian IT built its business on a model that ran for 30 years: take complex technology work from global enterprises, staff it with skilled engineers at a fraction of the West’s costs and bill clients by the number of people deployed. AI automates exactly this work. When a contract that required 500 engineers now requires just 300, the revenue falls by 40 per cent. The work does not disappear. The billing does. Sector revenue growth has already collapsed from the high teens during the Covid years to roughly 2 per cent today. The question “Will Indian IT even exist in the coming decade?” is now being asked seriously. It is no longer a fringe view. But some of the most informed investors in the country are answering it differently. Domestic mutual fund managers running dedicated technology funds have been steadily increasing their stakes in IT stocks even as prices have fallen. These are not passive observers. They spend every working day analysing these companies, meeting their managements and reading signals in deal pipelines long before they appear in earnings reports. Their view directly contradicts what the market is saying. This is not the first time Indian IT has faced an existential question. The sector was written off when digital transformation took hold in 2013. Cloud computing raised the same fears in 2017. Both times, it adapted, found new revenue pools and rewarded investors who stayed invested. The question today is whether AI is a third such moment, or something categorically different. To find out, Ashish Menon, Senior Equity Analyst at Value Research Stock Advisor, sat down with four of the top IT fund managers in the country: Vaibhav Dusad of ICICI Prudential Mutual Fund, Meeta Shetty of Tata Mutual Fund, Shibani Sircar Kurian of Kotak Mutual Fund and Sumanta Khan of Edelweiss Mutual Fund. Here is what they said. Let’s start with you, Vaibhav. You have a telecom company as your second-largest holding at a little over 12 per cent, with telecom and platforms now rivalling pure IT services. Do you think Indian IT is dead, or poised to thrive? And does this move towards a telecom stock in your top holding answer the question on its own? Vaibhav Dusad: Thanks for having me here. If you look at my portfolio and compare it with the benchmark, the benchmark itself has a 30-35 per cent weightage in telecom. Because telecom outperformed IT, this reflects that I’m actually underweight telecom and overweight ex-telecom and other stocks. So that is a technical correction on your question. Secondly, in my view, things have evolved much faster than we anticipated. There are multiple things that are happening at this point. Before the start of the AI journey, I was expecting a durable growth rate of, let’s say, 6-8 per cent, maybe 7-8 per cent from the sector, both large caps and mid caps put together. The expectation, because of AI, at least in the medium term, has gone from that to, let’s say, 5 to 7 per cent, 5 to 6 per cent and in some cases, 4 to 7 per cent. And what the stock prices reflect is a growth rate anywhere between negative territory and 2 or 3 per cent. So, as we have seen multiple times, whenever there is a sea of bad news, there is always an extrapolation in the market. To that extent, many of these names are clearly in oversold territory. On top of that, all of this is coming in a relatively tougher macro backdrop, and when the macro backdrop is tougher, clients are more focused on cutting existing deals coming up for renewal. That is part one. The second part, which is now very clear in many of the interviews I see in the US, is that clients were earlier spending heavily on discretionary budgets with IT services companies, and that trend started post-Covid; there was a wave of digitisation. Now that the discretionary budget has gradually come off, and the allocation of it has moved to spending with, let’s say, the likes of Anthropic, OpenAI, GitHub, all of these companies. Hence, a large part of that discretionary spend has shifted towards them because many enterprises in the US are still figuring it out. They are still in the experimental stage; they have not yet increased their overall tech budget, and this part has moved to these companies. At the same time, for the deals coming up for renewal, of course, there is some reduction in effort in many of them. In my estimate, earlier in a particular deal, the deflation was 10 per cent; it has increased by maybe another 10-15 per cent. Overall, that is why I said the expectation for the growth rate is now maybe 2 per cent lower than what I believed before AI, and that is a reflection becoming visible in these deal renewals. But all of these things put together, right now, we are still in a transition mode. We have seen these waves play out in the digital transition phase, let’s say in the 2013 period, then in the cloud phase, the 2017-18 period. Once this transition phase is over, as you move to the other side, growth tends to normalise as well. So I feel that, at the moment, we are in that kind of phase. Meeta, more than half of it is in your classic, conventional IT services business, with the top three names clearly in that bucket. Do you think Indian IT is dead or poised to thrive? And on the recent performance of your fund, would you call it a bad timing on a sound strategy, or is it a sign that AI has put a major dent in that strategy? Meeta Shetty: One is the bad performance in comp

This article was originally published on July 01, 2026.