The nearly 28% correction in the over the past year has revived debate over whether investors should consider sector-specific IT index funds.
The discussion has gained traction after recently lowered its growth outlook and reported weaker outsourcing bookings, raising concerns about global technology spending and the impact of artificial intelligence (AI) on traditional IT services.
Let’s find out what experts have to say and whether you should consider investing in IT index funds at this point.
Should retail investors consider Nifty IT Index Funds?
Experts broadly agree that Nifty IT Index Funds should not be viewed as core portfolio holdings, but opinions differ on whether the current correction offers a favourable entry point.
According to Nirali Bhansali, Equity Fund Manager at Samco Mutual Fund, investors should remain cautious amid significant structural changes in the sector.
“For decades, large IT services companies benefited from business models built around outsourcing manpower intensive work, given the labour arbitrage, application maintenance and digital transformation projects. Given the pace of AI’s evolution, it is beginning to challenge some of these revenue streams for traditional IT companies. Therefore, at this juncture, retail investors should exercise caution before investing in Nifty IT Index Funds.”
However, Nishchal Jain, Quant Researcher at Share.Market by PhonePe believes the ongoing correction may offer a long-term accumulation opportunity.
“Retail investing in the Nifty IT Index currently requires a shift from panic to structural discipline. Because sectoral funds are inherently cyclical and volatile, retail investors should avoid risky lump-sum bets and instead utilise Systematic Investment Plans (SIPs) to average out near-term fluctuations while accumulating India’s core tech leaders at reasonable prices.”
Tanvi Kanchan, Associate Director at Anand Rathi Share & Stock Brokers, says investors must understand that a Nifty IT Index Fund is essentially a concentrated bet on a handful of large-cap IT companies.
“For retail investors, it depends on time horizon, not headline sentiment. Index funds tracking Nifty IT give exposure to the same five-six dominant names — TCS, Infosys, HCL Tech, Wipro, Tech Mahindra and LTIMindtree make up the bulk of the index weight — so an investor is effectively making a concentrated bet on large-cap IT services, not a diversified technology bet.”
Gaurav Arora, Head of Research at Sahi, also believes the sector should be viewed as a tactical allocation rather than a core investment.
“A Nifty IT index fund is best treated as a tactical, satellite allocation, not a core holding. After a roughly 32% fall in 2026, the index trades near 19x earnings, below its historical averages. That makes it a contrarian, value-zone idea for investors with a 3-5 year horizon who can stomach concentration and further drawdowns, ideally accumulated via SIPs and sized small. It is not suited to those seeking quick gains.”
What is Accenture’s warning signal for the IT sector?
Accenture’s recent commentary has become a focal point for investors evaluating the health of the global IT services industry.
Bhansali says the warning reinforces concerns already in the market.
“Accenture’s recent caution reinforces concerns that were already present rather than introducing a new worry for the sector. The company’s softer revenue growth outlook and weaker outsourcing bookings suggest that global enterprises remain cautious about discretionary technology spending.
Management also highlighted broader macroeconomic uncertainty and geopolitical disruptions as factors weighing on client decision-making. Delays in certain consulting engagements due to tensions in the Middle East highlight the challenging demand environment.”
“At the same time, many organisations are reassessing their technology budgets as they evaluate how AI can be integrated into their workflows,” Bhansali adds.
Jain shares a similar view, arguing that the slowdown reflects caution rather than a collapse in demand.
“Recent global triggers, such as Accenture narrowing its growth guidance to 3-4%, reflect enterprise budget caution rather than industry decay. Global clients are temporarily pausing discretionary tech spending to evaluate the tangible returns of emerging technologies.”
Arora also believes the key issue currently is spending delays rather than outright disruption from AI.
“The near-term problem is deferred spending, not AI cannibalisation. Accenture’s June 2026 results showed bookings down 13% sequentially and a guidance cut, confirming frozen discretionary IT budgets.”
Is AI a threat or an opportunity for the Indian IT sector?
The emergence of generative AI has created one of the biggest strategic questions facing the IT services industry.
Bhansali notes that, “the key question investors should ask themselves is whether AI will help accelerate growth through new opportunities for these traditional companies or will it lead to slower demand growth, pricing pressure and revenue deflation in certain segments.”
Jain believes the sector is navigating a normal technology transition cycle.
“While AI-led disruption poses a near-term deflationary threat to legacy code maintenance and software testing, it simultaneously opens massive horizons in cloud migration, data engineering, and generative AI deployment. The industry is simply navigating a standard technology transition cycle where older revenue streams plateau before high-value AI workloads fully scale.”
Kanchan argues that markets may be overestimating near-term risks while underestimating long-term opportunities.
“On the AI disruption, it is being mispriced by the market in the short term. AI is expected to cause roughly 2-3% annual deflation in traditional IT services revenue over the next couple of years, concentrated in application development, testing, and maintenance work, which together contribute close to a third of industry revenue.”
At the same time, she sees a significant expansion opportunity. “Indian IT services could see an incremental AI-led addressable market of USD 300-400 billion by 2030, against a current industry size of roughly USD 280-285 billion. In other words, the opportunity on offer is larger than the existing business itself, even if it arrives with a lag.”
What are the key risks investors should watch?
Experts identify multiple risks before investors allocate money to IT-focused index funds.
According to Bhansali, “before investing in IT-focused index funds, investors should first assess their own risk appetite and gauge how effectively Indian players can integrate AI into their workflows to deliver quicker ROI. The investment case today is no longer just about global technology spending cycles; it increasingly hinges on how successfully IT companies adapt to a rapidly evolving technological landscape.”
Jain points to execution and macroeconomic risks. “The key risks centre around prolonged deal-to-revenue conversion timelines and persistent margin pressures as cost-conscious clients demand cheaper, optimised pricing models, further compounded by macroeconomic uncertainty and FII outflows.”
Arora highlights similar concerns, such as “concentration, weak US demand, AI-led margin pressure, and currency swings.”
What opportunities could support a recovery?
Despite near-term challenges, experts also see several factors that could support long-term growth.
Jain notes that Indian IT firms remain financially strong and are investing heavily in future technologies. “Indian IT majors boast highly resilient, cash-rich balance sheets and are aggressively upskilling talent to capture dominant market share in high-margin future verticals like advanced cybersecurity and enterprise AI integration.”
Bhansali believes the ultimate opportunity depends on how effectively companies reinvent themselves.
“The real opportunity lies in whether leading IT companies can successfully reinvent themselves and emerge as beneficiaries of the AI era. Until that balance becomes clearer, caution remains the better course.”
Kanchan points out that the valuation reset has already been substantial. “The valuation reset has also been steep enough that IT index P/E multiples have fallen below the broader Nifty 50’s, suggesting a fair amount of the disruption fear is already in the price.”
Arora sees favourable risk-reward characteristics emerging. “Multi-year-low valuations, strong cash flows and payouts, and optionality on an AI-led demand rebound — an attractive asymmetry off a low base.”
Overall, experts suggest that investors with a 3-5 year horizon may consider investing in Nifty IT Index Funds through the approach, while those seeking short-term returns or lower volatility may prefer to stay on the sidelines until there is greater clarity on AI-led growth and technology spending.