Indian IT stocks may have already absorbed much of the market's fear around artificial intelligence, even as investors continue to reassess the long-term earnings power of the sector, according to Chintan Haria of ICICI Prudential Asset Management Company.
The Nifty IT index has fallen about 25% in 2026, a decline that has sharpened concerns over whether generative AI and automation will erode demand for traditional software services, compress pricing and slow revenue growth. But Haria argued that the selloff has likely discounted a substantial portion of that disruption risk, leaving room for selective stock picking rather than a blanket exit from the sector.
AI Risk Priced In
Haria's view comes at a time when global investors are debating whether AI will be a productivity catalyst for large technology vendors or a structural threat to labour-intensive outsourcing models. For Indian IT services firms, the issue is especially sensitive because their business model has historically depended on large-scale application development, maintenance and support work, much of it delivered through offshore talent.
The market has already responded aggressively to those concerns. The latest correction in the Nifty IT index reflects not only worries about AI-led substitution, but also a broader slowdown in discretionary technology spending, delayed enterprise decision-making and pressure on client budgets in key overseas markets. In that context, Haria's assessment suggests that valuations may now be closer to a floor than a peak, at least for companies with stronger execution and more adaptable service lines.
That does not mean the sector is free of risk. AI is changing the economics of software delivery, and investors are increasingly focused on whether Indian firms can preserve margins while investing in new capabilities. But Haria's argument is that the current valuation reset already captures a meaningful amount of this uncertainty, reducing the likelihood of further indiscriminate derating unless earnings deteriorate materially.
Selective Growth Pockets
Haria pointed to a narrower set of opportunities within the sector, especially among companies positioned to benefit from data engineering, cloud migration, legacy modernisation and AI integration. These areas are increasingly central to enterprise technology budgets as global clients seek to clean up data architecture, move workloads to the cloud and retrofit older systems for AI-enabled workflows.
That shift matters because it changes the composition of IT demand. Instead of relying solely on large, multi-year outsourcing contracts, vendors with credible capabilities in transformation services may find more resilient demand from clients trying to modernise operations and deploy AI responsibly. In that sense, AI is not only a threat to Indian IT; it is also a source of new consulting, integration and engineering work for firms able to adapt quickly.
The distinction is likely to separate winners from laggards. Companies with deeper domain expertise, stronger cloud partnerships and a track record in digital transformation may be better placed to capture incremental spending. By contrast, firms more exposed to commoditised application maintenance or legacy outsourcing could remain under pressure if clients use AI tools to automate routine tasks.
For investors, the message is less about a sector-wide recovery and more about discrimination. Haria's comments imply that the market may have already priced in a worst-case scenario for many names, but that future returns will depend on whether individual companies can prove they are beneficiaries of the AI transition rather than casualties of it.
Valuation Meets Transition
The broader macro backdrop also matters. Indian equity investors have spent much of the year rotating between defensives and growth sectors as global rates, currency moves and overseas demand conditions shifted. IT stocks, which are sensitive to US and European spending cycles, have been especially vulnerable to changes in sentiment.
A 25% fall in the index is significant, but it also creates a different starting point for long-term capital. If earnings hold up better than feared, valuations could recover. If AI adoption accelerates faster than expected and clients reduce headcount-heavy work, the sector may face a more prolonged reset. Haria's stance sits between those extremes: cautious on the structural challenge, but constructive on selective names that can evolve with the market.
For now, the message from ICICI Prudential AMC is that investors should not treat the entire IT pack as a uniform trade. The market has already punished the sector for its exposure to AI disruption, but that very repricing may be creating entry points in businesses with the right mix of scale, capability and transformation exposure.