The Nifty IT index is poised to end in the negative zone for the eighth consecutive week this Friday, dragging the combined market capitalization of all 10 Nifty IT stocks below ₹25 lakh crore. The relentless selling has eviscerated shareholder wealth at a pace rarely seen outside full-blown market crashes.
Yet history suggests such carnage often precedes violent reversals. Apart from the April-May 2022 stretch of eight consecutive down weeks, which was followed by a swift 4.4% pullback the very next week, a similar pattern occurred in July 2008, when a seven-week decline triggered a strong rebound averaging 3-5% in the following week. Even the savage 12-week losing streak from January to mid-April 2001 eventually sparked a jump.
While foreign investors staged a dramatic exodus in February, dumping a staggering ₹17,000 crore in IT shares in panic, India’s largest active equity mutual fund did the exact opposite. PPFAS Flexicap Fund, managing ₹1.34 lakh crore in assets, made a bold contrarian bet by aggressively buying the very stocks sparking “Kodak moment” fears.
The fund’s February portfolio disclosed bold buying across India’s software giants at precisely the moment analysts were slashing price targets. PPFAS added 4.3 million shares of HCL Tech, 4.2 million shares of Infosys, and 1.9 million shares of TCS as the sector recorded a brutal 20% monthly crash in February, its steepest fall since the 2008 global financial crisis.
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Foreign institutional investors fled in two waves: ₹11,000 crore in the first fortnight, followed by another ₹5,993 crore between February 15-28, according to NSDL data.
Jefferies analysts warn that AI “may structurally change IT business mix towards consulting/implementation while shrinking managed services. This would not only increase cyclicality but also require a change in talent/operating model—thus adding risks.”
In the worst-case scenario, Jefferies warned that stocks could derate by another 30-65% with Wipro having the lowest and Coforge having the highest derating potential. Even under modest assumptions of growth cuts of 3% over FY26-36 and 1% lower terminal growth, PE multiples could still derate by 10-35% for large IT firms and up to 15% for mid-sized players.
The brokerage downgraded multiple stocks including Infosys, HCL Tech and Mphasis to Hold, and TCS, LTIMindtree and Hexaware to Underperform, slashing price targets by up to 33%. IT stocks still offer higher downside than upside, Jefferies said.
Emkay Global also turned cautious, lowering earnings estimates for FY27/FY28 by 1%/2% respectively and slashing target multiples for IT services and BPO companies by approximately 20% and 32% respectively, “to capture conservative assumptions on required terminal growth.”
Axis Mutual Fund remains underweight IT amid a cautious demand environment in the US. “While rupee depreciation and attractive absolute valuations offer some comfort, relative valuations versus global peers remain elevated,” the fund said.
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But Nuvama is betting the other way entirely and even evoked Mark Twain’s famous quote “Reports of my death are greatly exaggerated” to argue that investor fears around the extinction of software services is misplaced.
“We see no existential threat from Gen-AI, as we believe the requirement for a system integrator—which can customise an enterprise’ plug-and-play software’s input and output as per its requirements—shall always exist,” Nuvama said. “We also note B2B adoption of any technology is very different from that of the B2C segment. Eventually, enterprises going for automation of tasks shall still need someone to take ownership of the system—and that will be IT Services firms,” Nuvama said.
The brokerage believes “IT Services firms shall face cannibalisation of revenue in the initial phase (which they are facing currently) before they reach the inflection point; post-this, the opportunity shall lead to an expansion of TAM (USD300–400bn by 2030 as per Infosys management).”
“Post the recent sharp correction, we find the valuations of all stocks highly attractive,” Nuvama said. “Reverse DCF also indicate extremely low terminal growth assumptions.” The brokerage upgraded HCL Tech, Wipro, TechM and Hexaware to buy after which it has a bullish call on all the top 10 IT stocks.
The battle lines are now drawn between those warning of structural obsolescence and contrarians betting on a classic bear trap. With the sector trading at its most attractive valuations in years and historical patterns suggesting rebounds after extended declines, investors face a stark choice: flee with the foreigners or follow India’s boldest mutual fund into the wreckage.
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