Indian IT stocks have been under intense pressure in recent months as fears grow that artificial intelligence could disrupt the traditional outsourcing model that has powered the sector for decades. Yet, the recent escalation in the US–Iran conflict has added a new dynamic to the outlook, raising the question of whether the beaten-down sector could emerge as a contrarian opportunity for investors.
While benchmark indices have slipped over 5% since the start of the conflict, the index has relatively outperformed, falling only about 3% during the same period. The limited decline reflects the sector’s unique position in global markets, where currency movements and export revenues play a crucial role.
Despite this short-term resilience, the broader trend remains weak. The Nifty IT index has fallen 15.5% in the past month, 22% over three months, 18% over six months, and 21% over the past year as investors reassess the sector’s long-term growth trajectory.
The sell-off has been accompanied by significant foreign investor exits. According to NSDL data, foreign institutional investors sold worth ₹11,000 crore in the first half of February and another ₹5,993 crore in the second half, reflecting mounting global concerns about how generative AI could reshape the industry.
While the ongoing US–Iran conflict has broadly weighed on equity markets by triggering risk-off sentiment, the IT sector could see a partial cushion from currency movements, making it a good contrarian buy for investors. Geopolitical tensions have weakened emerging market currencies, including the Indian rupee, which tends to benefit export-oriented industries. Since a large share of Indian IT companies’ revenues is billed in US dollars, a weaker increases the value of those earnings when converted into rupees. This currency tailwind can help offset slower demand growth and margin pressures, providing some support to IT stocks even during periods of global market turbulence.
Is it a good time to buy IT stocks?
Despite the challenges, some analysts believe the recent correction in the IT stocks may create opportunities for selective investors. Moreover,
Prasenjit Paul, Equity Research Analyst at Paul Asset & Fund Manager at 129 Wealth Fund, cautioned that investors must distinguish between short-term rebounds and sustainable long-term opportunities.
“Investors should differentiate between tactical rebounds and durable bottom formation. That said, we believe the real alpha opportunity lies beyond generic IT services. are likely to emerge from IP-led, niche technology businesses,” Paul said.
Paul believes companies with strong domain expertise in mission-critical technologies and sticky enterprise relationships are better positioned to generate superior returns. In his view, investors should focus more on individual stock selection rather than broad sector exposure during periods of volatility.
Other analysts argue that concerns about artificial intelligence replacing traditional outsourcing work may be exaggerated.
Ravi Singh, Chief Research Officer at Master Capital Services, said that while automation could replace some routine IT jobs, the technology will also create new opportunities.
“With increasing applications of artificial intelligence, many industries worry about a structural slowdown in IT services because some routine tasks can be automated. However AI will also create new opportunities in cloud computing, data analytics and cybersecurity,” Singh said.
Singh added that global enterprises will continue to depend on technology partners to implement and manage new digital systems, suggesting that Indian IT companies may evolve rather than decline.
Currency movements could also support the sector. Singh noted that rupee depreciation and global uncertainty tend to benefit IT exporters because a large portion of their revenues are earned in .
Brokerage Nuvama also maintained a positive medium- to long-term outlook for the sector, even though it expects near-term volatility to persist.
According to the brokerage, the sharp correction in IT stocks over the past two months has made valuations attractive. It also noted that while generative AI has raised concerns about the industry’s future, the technology does not represent an existential threat.
Nuvama believes enterprises will continue to rely on system integrators to customise and manage plug-and-play tools according to their specific business needs.
For now, the sector sits at a critical crossroads. Structural disruption fears from artificial intelligence continue to cloud the outlook, but weaker currency trends and attractive valuations are beginning to shift the risk–reward equation for investors willing to take a contrarian view.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.