Indian information technology stocks may be closer to a valuation reset than a structural collapse, even as investors continue to worry that artificial intelligence will erode the sector's long-term earnings power. Chintan Haria of ICICI Prudential AMC said the market has already discounted a large part of the disruption risk, after the Nifty IT index fell about 25% in 2026, leaving room for selective accumulation rather than a blanket exit from the sector.
AI Risk Priced In
Haria's assessment reflects a growing debate in India's equity market: whether the sell-off in IT shares is a rational repricing of future growth or an overreaction to the threat posed by generative AI and automation. The sector, long viewed as a defensive export-oriented earnings engine, has come under pressure as investors reassess demand visibility, pricing power and the durability of traditional outsourcing models.
According to Haria, the recent correction has already captured much of the downside from AI-led disruption. That view suggests the market is no longer pricing Indian IT companies as if their core business models are immune to change, but neither is it assuming immediate obsolescence. Instead, valuations appear to reflect a more cautious middle ground, where slower growth and margin pressure are acknowledged but not yet catastrophic.
For fund managers, that distinction matters. If the worst fears are already embedded in prices, the next phase of performance may depend less on broad sector sentiment and more on company-specific execution. Firms that can adapt their service mix, deepen client relationships and move up the technology stack may still generate attractive returns even in a subdued industry backdrop.
Selective Opportunity Set
Haria pointed to a narrower opportunity set within the sector, favouring companies positioned to benefit from data engineering, cloud migration, legacy modernisation and AI integration. These are the areas where enterprise spending is likely to remain resilient, as global clients continue to overhaul technology infrastructure rather than simply cut costs.
That preference underscores a key shift in the investment case for Indian IT. The old playbook of betting on broad-based digital transformation and large-scale outsourcing is giving way to a more selective approach focused on firms with stronger capabilities in next-generation services. Data engineering and cloud migration are increasingly central to enterprise technology budgets, while legacy modernisation remains essential for large corporations seeking to reduce complexity and improve efficiency.
AI integration, meanwhile, is emerging as both a threat and an opportunity. While automation may compress demand for some lower-value services, companies that help clients deploy AI tools, manage data pipelines and redesign workflows could capture new revenue streams. In that sense, the sector's winners may be those that can use AI to enhance delivery rather than those that merely defend existing business lines.
Market Still Searching
The broader market reaction to IT has been shaped by uncertainty over the pace of AI adoption and the extent to which it will alter labour-intensive service models. Investors have also been weighing the impact of global macro conditions, including slower technology spending in key overseas markets, currency movements and the possibility of delayed decision-making by enterprise clients.
Against that backdrop, the 25% fall in the Nifty IT index in 2026 is significant not only for its magnitude but also for what it signals about investor psychology. A sector that once commanded premium valuations for its predictability is now being treated as a cyclical and disruptive-risk trade. Yet Haria's comments imply that such pessimism may already be reflected in prices, opening the door for stock-picking rather than sector-wide avoidance.
For domestic investors, the message is nuanced. The IT pack may no longer offer the easy defensive appeal it once did, but neither does it appear uniformly overvalued after the correction. The market is likely to reward companies that can demonstrate revenue resilience, faster adaptation to AI-led client demand and credible exposure to modernisation themes.
In practical terms, that means the next leg of performance in Indian IT may depend less on whether AI is disruptive in theory and more on which companies can monetise the disruption in practice. Haria's view suggests that the sector's valuation reset has created a more balanced entry point for investors willing to separate structural losers from strategic beneficiaries.