Indian IT stock valuations already price in AI disruption, says Chintan Haria

Indian IT stocks have taken a beating over fears of artificial intelligence disruption, but market strategists suggest the worst of the panic is now reflected in share prices.

According to Chintan Haria, principal for investment strategy at ICICI Prudential AMC, a steep correction in the Nifty IT index has reset valuations to a point where they capture the bulk of the transition risks. The sector's price-to-earnings (P/E) multiple has fallen to 17.6x, dropping below the broader Nifty 50, which sits at 19.2x.

Speaking to The Economic Times, Haria explained that while AI challenges traditional, manpower-heavy roles like routine application maintenance, it also forces enterprises to overhaul their technology. Large-cap IT firms, with their cash-rich balance sheets, currently price in very low growth, meaning any positive shift in the global narrative could trigger a significant rerating.

Why the Nifty IT sell-off might be overdone

The Nifty IT index fell by roughly 25 per cent in 2026, leading to fears of a structural downgrade. However, Haria argues that the market is overlooking the massive volume of work required to prepare businesses for artificial intelligence.

Enterprises cannot deploy AI effectively without underlying technology architectures. This creates fresh demand for Indian IT firms in data engineering, legacy modernisation, cloud migration, and AI integration. Because Indian providers have massive scale and established client relationships, they are well-positioned to capture this next wave of technology spending.

Why India's AI strength lies in services, not hardware

This view of IT services as the resilient core of India's tech sector is echoed by policy analysts. Vivan Sharan, a policy expert at Koan Advisory Group, argues that Indian policymakers should avoid the temptation to spend public funds trying to compete across the entire global AI hardware stack.

Writing in Livemint, Sharan pointed out that national spending on subsidising graphics processing units (GPUs) does not create lasting national capability. Currently, many of India's roughly 38,000 subsidised GPUs are being used to service global demand because domestic companies simply do not have enough usage for them.

Instead, India's natural competitive advantage lies in the knowledge and IT services layer. Recent Reserve Bank of India (RBI) figures support this divide: while India's software-product exports shrank by 6 per cent in the 2025-26 fiscal year, its IT service exports expanded by nearly 12 per cent.

What are the risks for IT investors?

While the valuation reset has made Indian IT stocks look highly attractive for five-year investors, Haria warns that the transition will not be entirely smooth.

Some AI spending will inevitably cannibalise existing IT budgets, putting pressure on traditional outsourcing and maintenance revenue. The key risks to this selective, long-term bullish thesis include a faster-than-expected displacement of legacy systems, persistent pricing pressure, and slower overall technology spend by global corporate clients.