IT sector outlook: After being one of the market’s worst-performing sectors, India’s information technology (IT) stocks may finally be poised for a revival, according to Vikas Khemani, founder of Carnelian Asset Management.
Speaking in an interview with ET NOW, Khemani said the recent correction in IT stocks presents an attractive opportunity for long-term investors, even as the sector continues to navigate the disruptions caused by artificial intelligence (AI).
“It has been in transition. There’s no denial that AI has been a disruptive technology,” Khemani said. However, he added that the narrative suggesting AI would significantly damage the IT services industry was misplaced.
AI to expand, not shrink, the industry
Khemani drew parallels with previous technology shifts such as Y2K, enterprise digitisation and cloud migration, arguing that every major technological transition has ultimately expanded the size of the IT services industry rather than diminished it.
“We have long maintained that while this transformation will happen, IT services companies will tend to gain from it as an industry,” he said.
According to him, AI is increasingly becoming a tool that IT companies themselves are deploying to deliver services more efficiently and lower costs. At the same time, he believes that enthusiasm around AI spending in the US is beginning to cool, with investors increasingly questioning the return on investment and raising concerns around trust and implementation.
“This whole AI trade is a frenzy in the US, and it’s in the late cycle. Incrementally, people are questioning ROI on the AI spend,” Khemani said.
Stock picking will be key
While maintaining a constructive outlook on the sector, Khemani cautioned that not every IT company will emerge as a winner from the AI transition.
“Some will be fast to adapt, some will be slower to adapt. The real thing is identifying those companies,” he said, adding that opportunities could be particularly interesting in the mid- and small-cap technology space.
He acknowledged that the sector could remain volatile in the near term, but said investors should focus on the long-term potential. “It might happen that the sector remains under flux for some more time, but if you look at two, three or four years out, reasonably good value creation will happen there,” Khemani said.
Long-term opportunity emerging
The remarks come at a time when Indian IT stocks are attempting to recover from an extended period of underperformance, weighed down by concerns over slowing global technology spending, generative AI disruption and weak discretionary demand.
Khemani’s comments suggest that the ongoing correction in technology stocks should be viewed as an opportunity rather than a reason for caution. However, he emphasised that investors need to be selective and focus on companies that are adapting quickly to the changing technological landscape and positioning themselves to benefit from the next phase of AI-led growth.
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
