Indian IT stocks, which shed $50 billion in market capitalization in February amid anxieties over artificial intelligence (AI) disruption, may be poised for a rebound, according to Piyush Pandey, Senior Vice President, Institutional Equity Research at Centrum India. Pandey characterized current valuations as “extremely comfortable,” noting that many stocks are trading below their five-year averages.
“As of now, it looks like most of the stocks are in oversold zone and I would say, the fears from the AI are overblown,” Pandey told ET Now in a recent interview. “And as most of these management we also believe that AI would provide more opportunities in the medium to long term. In fact, there can be some price deflation for certain legacy projects, but that should be more than compensated with increasing volume of IT projects.”
The recent sell-off was triggered by the launch of AI tools, including one by Anthropic, prompting a global tech sell-off and concerns about the future of India’s $283 billion IT services industry. Infosys responded to these concerns earlier this month by announcing a partnership with Anthropic to develop and deploy AI agents, a move that saw its shares rise nearly 5% on February 17th, according to Reuters.
Pandey downplayed the notion that AI represents a fundamentally different technological shift compared to previous disruptions like cloud computing and internet adoption. “Even with this disruption, it is more about improvement in productivity. Revenue per employee would increase, headcount addition would be more measured, and some routine tasks can get automated. IT services companies are well entrenched in the entire IT ecosystem where they understand the client’s context and their tech journey over decades.”
He suggested that the productivity gains enabled by AI could unlock previously unviable legacy transformation projects. “Near term we might see some disruption, but I remain positive and it looks like even for FY27 performance would be slightly better compared to what we had in FY26,” Pandey said.
Addressing concerns about AI reducing the demand for human labor, Pandey predicted a shift towards fixed-price or outcome-based projects. “In this AI age I believe it would shift from man-hour base to fixed price or outcome-based projects. There has been significant increase in productivity, especially in coding hours, but for clients who were previously unable to implement IT projects, now it becomes easier and more affordable,” he explained.
While acknowledging potential margin compression on legacy projects, Pandey believes margins will be protected as IT companies transition to outcome-based billing models. He contrasted the situation for Indian IT firms with that of their US counterparts, suggesting that US tech companies face a greater risk if they fail to effectively monetize AI. “There is more of a bubble case in AI for US tech companies, but for Indian companies, the opportunities are just too huge.”
For investors, Pandey recommends a patient approach, suggesting that prices may need a month to stabilize. “But at the current valuations, if somebody has a long-term horizon… and even Q4 would be reasonably good. So, if somebody has a longer term, one can add; otherwise, they can wait for the prices to stabilise.”
Pandey favors a balanced portfolio, recommending a mix of large-cap and mid-cap IT stocks, specifically citing Infosys and Coforge as top picks. He also highlighted the importance of tracking key metrics such as Total Contract Value (TCV) of AI-led deals and the pace of growth in AI-led revenue. Infosys reported that AI services accounted for 5.5% of its total revenue in the December quarter, while Tata Consultancy Services reported a similar figure of 5.8%, representing approximately $1.8 billion in revenue.
Pandey emphasized the continued importance of monitoring headcount addition to maintain a healthy employee pyramid within IT services firms.