IT stocks have seen sharp correction so far this year with many top-tier IT companies declining over 20% in 2026 thus far. In fact, the Nifty IT Index has fallen around 20% on a YTD basis. One of the key reasons behind the steep sell-off have been investor concerns over the potential disruption caused by AI. However, international brokerage firm Nomura remains constructive on the sector.
After Nuvama’s strong Buy call for top-10 IT services stocks, Nomura too believes the recent sell-off may have already priced in much of the near-term pain for IT services companies. They are betting on the long-term opportunities. They do not expect AI to make IT services obsolete.
Nomura’s top IT sector picks
Identifying the top bets across the IT sector stocks, Nomura pointed out that it prefers Infosys and Cognizant among large cap companies. In the midcap segment, it favours Coforge, while in the small-cap space it prefers eClerx Services. The brokerage has a ‘Buy’ rating on all these stocks.
“The current sell-off in IT services stocks appears to be a case of front-loading of pains — pricing in the extinction of old models before gains from new models emerge,” Nomura said.
The brokerage expects IT companies to adapt to new technological waves over time. While it agrees that the transition to AI may be challenging initially, Nomura believes strong free cash flows and dividend yields of around 4–5% could provide support to IT stocks.
“Tech cycles in the past have expanded overall tech spending, and IT companies have been agile in adapting to new waves,” it added.
Nomura quoted Pareekh Jain, CEO and Founder of EIIR Trends, who said AI could put pressure on pricing in the IT services industry in the short term but create more opportunities over the medium to long term.
IT services firms will remain relevant
Nomura also added Jain’s comment on the impact of AI as one of the reasons for the positive view. Jain does not believe AI will make IT services companies obsolete. Instead, he argued, “The complexity of the tech landscape is increasing in the AI world. This makes the role of system integrators (IT services companies) more relevant than ever before.”
However, he acknowledged that the traditional model of labour arbitrage — where companies rely heavily on adding more employees to drive revenue — will face disruption in the AI era.
“IT companies now have the ability to grow 4–5% per year without any meaningful headcount increase,” Jain said.
He also suggested that Indian IT companies should pursue geographic expansion more aggressively instead of relying primarily on developed markets.
AI could trigger double-digit deflation in IT services
The Nomura report quoted Jain and highlighted that “Low-end work in IT services will be most prone to productivity- and automation-led deflation due to AI. This could even lead to double-digit deflation in the value of services for IT companies.”
Jain also said that the industry is currently facing a “double negative” not only because of AI-led pricing pressure but also because it is coinciding with an uncertain global macroeconomic environment.
AI to create significant opportunities for IT services companies
Jain also believes that in the coming years, demand is likely to grow in areas such as data management and sanitisation, cloud adoption, legacy system modernisation, and cybersecurity.
Jain added that AI will also make it easier for enterprises to build customised technology solutions, which could create new streams of work for IT services providers.
Pareekh also expects margins to improve which AI will cross 25% of total revenue for IT companies in near future. He believes that initially, margins will be under pressure due to deflation.
BPO likely to see the biggest impact
According to Jain, AI will impact different service lines in the IT industry at different levels.
He said business process outsourcing (BPO) will see the biggest disruption, followed by application development and maintenance (ADM) and engineering research and development (ER&D).
Metrics to track companies’ AI progress
Jain said most Indian IT firms will eventually adapt to the AI-driven technology landscape. However, the speed at which companies transform their business and operating models will determine the winners and losers.
He said investors should track factors such as deal quality, the share of digital workforce, rising revenue per employee, and changes in revenue per client.
Jain added that companies that proactively cannibalise their own traditional revenue streams and guide clients toward AI adoption could emerge as leaders in the next phase of the industry.
He also expects revenue models to gradually shift from fixed-price or time-and-material contracts to outcome-based or subscription-based models.
Conclusion
Analysts and IT experts believe that AI adoption may face near-term pressure during the transition, but it can unlock huge opportunities in the near and far future.
Analysts believe that the impact of AI will depend on how fast and effectively IT firms are able to adopt these changes. However, they are constructive over the long-term prospects and see the recent correction pricing in most of the near-term concerns.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.