New Delhi, Feb. 26 -- The Indian IT sector valuations have turned attractive after what appears to be an over-reaction to the artificial intelligence (AI) threat, according to Seshadri Sen, Head of Research and Strategist at Emkay Global Financial Services Ltd. Sen said that while structural growth challenges remain, the market's most pessimistic projections of a deep, prolonged contraction are overstated.

Emkay expects long-term sector growth to remain at sub-5%, but sees little merit in the "alarmist" projections of a vicious contraction. It says value is emerging at 14-18x price-to-earnings and a 4-6% free cash flow yield. The brokerage firm sees potential of a 6.5%-18.3% return, with limited downside, and has turned marginally overwe...