'Disrupted, not dead'

Summary: Indian IT has gone from being one of the market's most dependable sectors to one of its biggest disappointments. Is AI permanently changing the industry's future, or is the market overreacting? This story explores what technology fund managers see beyond the headlines.

Summary: Indian IT has gone from being one of the market's most dependable sectors to one of its biggest disappointments. Is AI permanently changing the industry's future, or is the market overreacting? This story explores what technology fund managers see beyond the headlines. The BSE IT index has fallen about 24 per cent in a year, wiping out five years of gains and turning the market’s steadiest compounder into one of its worst performers. The question lurking behind every headline is bigger than earnings or valuations. What if AI breaks Indian IT altogether? We put that question to four people who run technology funds for a living. None believes the sector is finished. But none believes it escapes unchanged either, and their conviction is worth reading alongside the fact that each is paid to manage money in the very sector they are defending. Their answers describe an industry in transition: from selling hours to selling outcomes, from hiring armies of engineers to building user-centric platforms, and perhaps from moving together as a sector to splitting into a much wider set of winners and losers. The debate is no longer whether Indian IT changes. It already is. The debate is whether it emerges stronger on the other side. Is Indian IT actually dead? Start with the fear itself, because it is doing real damage to portfolios. The market is not pricing IT for slower growth. It is pricing it for decline. Before AI, Vaibhav Dusad expected the sector to grow 6 to 8 per cent a year. He now expects 5 to 7 per cent, a modest cut. Share prices, he pointed out, assume something far worse, close to no growth at all. When a whole sector trades as though growth is disappearing altogether, one of two things must be true. Either the market knows something the managers do not, or it has mistaken a difficult year for a permanent decline. All four back the second reading.  We have seen this film before The optimistic case rests heavily on history. Every major technology shift first looked threatening to Indian IT, shrank some older line of work, and later built a bigger one. Y2K did it. The move to digital did it. So did the shift to cloud. Meeta Shetty put numbers on it. During that shift, a large Indian IT company began separating its digital revenue from its legacy revenue, because clients feared cloud migration would gut the old business. “In FY17, revenue was $10 billion for this company; in FY23, it was $20 billion. Digital, which was just $2 billion, became $13 billion in the next six years,” she said. What investors feared would destroy the old business became the engine of the new one. Kurian sees AI following the same pattern. “Every time the secto