While valuations of information technology stocks are currently supportive, the stance on the sector remains cautious due to the uncertainty about the impact of artificial intelligence, said Amnish Aggarwal, co-head of institutional equities at PL Capital. The broking firm has an ‘underweight’ on IT companies, along with cement, metal, oil and gas sectors. 

“Although large (IT) players will be survivors, intermittent period will be volatile with uncertainty on growth and margins,” as per the broking firm’s India strategy report. However, the India-European Union (EU) free trade deal will give much easier access to EU which has seen faster growth with increase in share of service exports from 20% to

25% over the past five years and further increase in coming years, as per the strategy report.

Indian IT stocks saw selling pressure for more than a year due to muted earnings growth, weak discretionary spending, and clients’ caution amid US tariff threats. The sell-off was further aggravated this month with the launch of Anthropic’s tool Claude Code, raising concerns of likely disruption to the traditional domestic IT services model. However, some analysts believe that the sell-off could be sentiment-driven rather than pure fundamentals. 

Market outlook

The next 5-10 years will be driven by asset creation and technology intensive industries which will find favor with markets, PL Capital said. It also believes that renewed thrust on defense, data centers, infrastructure, high speed rail corridors, renewables and manufacturing ecosystem bodes well for growth in coming years.

The benchmark equity index Nifty 50 is likely to mark a long consolidation as the index has been moving in a narrow range of 5-6% in the last 9 months. PL Capital has a 12-month target of 27,958 level for the index, which is almost 10% higher than Wednesday’s closing level of 25,482.50 points. 

Meanwhile, green shoots are visible as India signed a number of trade deals. “…demand is showing initial signs of revival buoyed by low inflation, GST rationalization and cut in interest rates,” as per the strategy report.