AI Impact on IT Stocks: Why Fund Managers Remain Confident Despite Market Selloff
Indian IT stocks face pressure amid AI disruption fears and falling valuations. Despite the selloff, fund managers remain optimistic about long-term growth prospects.
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AI Fears Shake IT Stocks, But Fund Managers Remain Confident in Long-Term Outlook
Concerns over artificial intelligence-driven disruption have triggered a sharp correction in Indian IT stocks, unsettling investors and pushing valuations lower. However, fund managers believe the recent selloff may be exaggerated and not fully supported by business fundamentals.
Over the past few weeks, technology stocks have emerged as major laggards on benchmark indices. The launch of advanced AI platforms by global firms like Anthropic has intensified worries about the future of traditional IT services. These developments have impacted investor sentiment, especially around services such as ERP implementation, legacy system maintenance, and enterprise software management.
Market participants fear that generative AI could reduce demand for conventional outsourcing models, leading to slower revenue growth for IT companies. As a result, IT stocks witnessed heavy selling pressure. After dropping nearly 7 per cent last week, the sector declined by another 6 per cent this week, pushing the Nifty IT index to a 10-month low on February 12.
This downturn has led to a noticeable re-rating in valuations. Data shows that leading IT companies have seen significant compression in their price-to-earnings ratios. TCS recorded a decline from 29.0x to 19.7x, while Infosys fell from 29.2x to 20.3x. Wipro’s multiple dropped from 25.7x to 17.4x, and HCL Technologies slipped from 27.0x to 23.9x. Tech Mahindra also saw a marginal reduction from 36.6x to 32.8x.
Mid-cap IT firms were not spared either. Coforge’s valuation reduced from 58.4x to 39.1x, while Persistent Systems declined from 65.8x to 49.2x. Meanwhile, the overall Nifty IT index P/E moderated from 28.3x to 24.7x, reflecting a broader sector-wide reset.
Despite the recent volatility, fund managers continue to maintain their exposure to the IT sector. Many believe that digital transformation, cloud adoption, and AI integration will create new revenue opportunities over the long term. They argue that established IT firms are well-positioned to adapt and monetise emerging technologies.
While near-term uncertainty remains, experts suggest that the current correction could present selective investment opportunities for long-term investors, especially in companies with strong balance sheets and diversified client portfolios.
