Tech and software stocks remain under pressure for the third straight session across the globe, since Anthropic and Plantir came up with new AI PlungIns. The Nifty IT Index is down nearly 2%. However, Kotak Securities believes that the fears about a bleak future for Indian IT services companies is misplaced.
Market fears of a bleak future for IT services are misplaced
Kotak Securities said that recent sharp declines in the stock prices of services and software companies, which were driven by fears that GenAI will deflate the sector, are overblown and misplaced. While the progress of GenAI is noteworthy, the brokerage said it is largely in line with expectations and that perceived risks are driven more by “future unknowns rather than current knowns”.
Anticipated revenue headwinds are manageable
Kotak Securities maintained its stance that GenAI adoption will lead to a 2-3% net headwind on revenue growth for the sector over the next 2-3 years. The brokerage expects these headwinds to peak in FY27 and notes that these risks are already partially factored into their current financial estimates.
Incumbents are more vulnerable than challengers
The report highlights that incumbent IT firms are more susceptible to GenAI-driven headwinds than smaller “quality challengers”. Incumbents may be reluctant to displace their own large business accounts, whereas challengers (such as Coforge, Persistent, and Hexaware) can offset disruption by being quicker to identify new AI opportunities and winning modernisation initiatives.
“Cloud, data modernization and legacy modernisation initiatives of clients as they invest in preparing for GenAI adoption. Challengers have shown mettle in winning large multi-year engagements against Tier 1 incumbents,” said the brokerage.
Industry claims from Palantir and Anthropic unproven or not universal
The brokerage firm questioned the universal applicability of Palantir’s claims that AI can reduce complex ERP migration timelines from years to weeks, noting that real-world factors like legacy system rationalisation and change management remain time-consuming. Similarly, while Anthropic’s new plugins and “Claude Cowork” tool have gained attention, the sources state their real-world impact is still unproven.
Upcoming CY2026 guidance is critical for investor sentiment
The report suggests that investors should closely watch the 2026 revenue guidance from major IT services companies like Cognizant, Capgemini, and EPAM in February 2026. Kotak Securities noted that initial guidance from Cognizant (2.5-5% growth) appears reasonable and does not indicate higher-than-expected headwinds from GenAI.
All in all, Kotak Securities maintained that market panic regarding a GenAI-driven decline in the IT sector is misplaced, as anticipated revenue growth headwinds of 2-3% are manageable and already partially factored into financial estimates.