In Indian equity markets, few debates carry more weight than one involving S. Naren and Rajeev Thakkar simultaneously. Between them, these two men oversee well over ₹3 lakh crore in actively managed equity assets. Naren — the Chief Investment Officer of ICICI Prudential AMC — is widely regarded as one of India's best equity fund managers, known for his contrarian approach of buying sectors when they are out of favour and reducing exposure when valuations become excessive. Thakkar, the CIO of PPFAS, built the Parag Parikh Flexi Cap Fund from zero to over ₹1 lakh crore in AUM since its 2013 launch — the first actively managed equity scheme in India to cross that threshold.
Right now, both men are paying careful attention to Indian IT — a sector that has been among the most comprehensively unloved and aggressively downgraded segments of the Indian equity market over the past eighteen months.
THE CARNAGE IN NUMBERS
The Nifty IT index has underperformed the broader Nifty 50 by 12 percentage points on a year-to-date basis. At its worst, the index fell nearly 5.2% in a single session. Over a one-month period, it shed close to 15% — its sharpest decline since the pandemic panic of March 2020. TCS's market capitalisation fell below ₹10 lakh crore for the first time since December 2020.
The brokerage community has been equally unsparing. Jefferies initiated a full ratings reset — downgrading TCS to 'Underperform' with its price target cut by approximately 33% to ₹2,350, placing Infosys and HCLTech on 'Hold' with price targets reduced by 31% and 26% respectively. The sector's earnings CAGR is projected at around 6% during FY26–FY28.
As of May 2026, TCS trades at a P/E of approximately 17x, Infosys at roughly 16x, and Wipro at just 14.43x — their cheapest absolute valuations in several years, despite both TCS and Infosys being debt-free with billions in net cash.
WHY THE MARKET IS SELLING
The bear case is not irrational. AI is expected to cause approximately 2–3% annual deflation in traditional IT services revenues. Application services — which account for 40–70% of revenues for many Indian IT firms — are particularly vulnerable to AI-led automation.
JPMorgan has outlined an extreme bear case where zero growth to perpetuity implies potential downside of 36%, 33%, and 39% for TCS, Infosys, and HCLTech respectively. Even in a moderate scenario where growth stabilises at low single digits, further downside of 9–22% is possible.
The competitive threat is real too. Jefferies has warned that Anthropic's AI-IT services foray poses a competitive threat to Indian IT firms, with frontier model ownership potentially pressuring mid-sized firms and intensifying pricing competition across the sector.
WHAT THE COMPANIES ARE ACTUALLY REPORTING
The actual results tell a more nuanced story. TCS delivered FY26 operating margin of 25% — up 70 basis points year-on-year and its highest in four years. TCV performance was $40.7 billion for FY26, among the highest ever recorded. Annualised AI revenues crossed $2.3 billion in Q4.
Infosys crossed $20 billion in full-year revenue for the first time, growing 3.1% in constant currency, supported by large deal wins totalling $14.9 billion — 28% higher than the prior year — and an adjusted operating margin of 21.0%. These are not the numbers of a sector in freefall.
THE CONTRARIAN CASE
The bull argument rests on several distinct pillars.
On valuation, Indian IT majors now trade at broadly comparable multiples to global peers like Accenture, whose P/E has already fallen from over 30x in 2024 to approximately 17.6x in early 2026 — yet carry stronger balance sheets and operate in one of the fastest-growing technology markets in the world.
On opportunity, AI-led services could create an incremental TAM of $300–400 billion by 2030 — remarkable compared with the current Indian IT services industry size of approximately $280 billion. Enterprises adopting AI still need partners to customise, implement, and manage these technologies. A partnership model looks more likely than direct displacement of Indian IT firms.
On timing, the peak disruption period is expected during FY26–FY28, with recovery projected from FY28-end or FY29 onward. For investors with a five-year horizon, buying during maximum pessimism and holding through disruption has historically been the correct approach across every previous technology transition Indian IT has navigated.
THE VALUE TRAP RISK
Intellectual honesty demands acknowledging the counter-argument. The old P/E multiples of 25–30x for legacy IT services firms may simply be gone permanently. The new fair value will be determined by how quickly these firms can transition from labour providers to outcome providers. That transition is neither guaranteed nor quick.
In JPMorgan's marginal improvement scenario — where growth gradually accelerates but remains below long-term averages — stocks could remain near current levels with limited upside for an extended period. That is precisely what a value trap looks like: cheap, stable, but yielding no return on patience.
WHERE THE SMART MONEY IS FOCUSING
This is not a broad-based sector call. The emerging view from serious fundamental analysis remains selective — gravitating toward names like Persistent Systems, LTIMindtree, and TCS on the basis of relative positioning, valuation comfort, and demonstrated ability to handle the shift toward AI-led delivery.
Thakkar's framework is consistent: "We don't go in thinking about categories — we buy businesses with the right combination of management quality, balance-sheet strength and sensible valuation." Naren's approach is to systematically overweight sectors that are currently out of institutional favour and hold through underperformance while the market consensus realigns — a strategy that has delivered approximately 22–24% five-year CAGR in his value fund.
THE VERDICT
The IT debate ultimately comes down to time horizon and conviction. For twelve-month investors, the near-term earnings pressure and absence of a clear re-rating catalyst make the sector difficult to recommend. For those with a three-to-five-year view, the combination of multi-year low valuations, debt-free balance sheets, record deal pipelines, and a $300–400 billion AI TAM expansion creates an asymmetric risk-reward profile that serious value investors find increasingly compelling.
The fact that Naren and Thakkar are simultaneously paying close attention is not a guarantee. But it is a meaningful signal — that the conversation in India's most disciplined investment rooms has shifted from "how bad can this get?" to "at what price does the opportunity outweigh the risk?" In Indian equity markets, when two of its most rigorous long-term practitioners ask that question at the same time, the rest of the market tends to eventually arrive at the same answer. The only question is whether you get there before or after the re-rating happens.
