New Delhi, April 6 -- Artificial intelligence is fast emerging as the defining fault line in India's IT services sector, with investors increasingly differentiating between potential winners and laggards, even as broader sentiment remains cautious.
A new report by European lender BNP Paribas, based on interactions with over 30 Asian investors, highlights that companies that build early AI capabilities and improve service mix are attracting disproportionate attention. Mid-tier firm Persistent Systems, for instance, is seen as having an early lead in AI capability building, supported by strong revenue per employee and a differentiated services portfolio.
"The days of buying the entire IT basket are over. Investors are now clearly distinguishing between companies that can monetise AI and those that cannot," said a Mumbai-based fund manager.
"AI is no longer a side experiment for IT services firms-it is fundamentally changing how services are delivered, priced and scaled," said Amit Agrawal, President at Techno Digital.
The shift reflects a deeper structural change underway in the IT services model, where AI-led automation and platform-driven delivery are expected to reshape traditional outsourcing economics. Investors are increasingly focusing on service-line exposure, AI readiness, and the ability to monetise next-generation technologies rather than relying solely on legacy scale advantages.
Even among large-cap firms, this divergence is becoming visible. HCLTech could benefit from global hyperscaler-led data centre capex cycles through its infrastructure management strengths, while Tech Mahindra is gaining traction for execution discipline and margin delivery.
However, valuation remains a sticking point for AI-favoured names, with investors wary of overpaying for future capabilities that are still evolving.
"Early movers in AI capability building are already seeing better deal pipelines and productivity gains, but valuations are running ahead of certainty," said technology analyst Chandresh Rai.
Macro clouds, but IT finds a relative footing
The technology-led divergence is playing out against a backdrop of rising macro uncertainty. Investor sentiment towards Indian IT has turned more bearish in recent months, driven by concerns over energy market disruptions-particularly persistent LNG supply constraints-and geopolitical volatility.
Hedge funds have been trimming exposure and reducing factor-based bets, while long-only investors remain unconvinced about the sector's long-term growth outlook, with some factoring in margin compression scenarios.
Yet, the near-term outlook appears to be stabilising. The report notes that bearishness may have "troughed", with the potential for earnings upgrades driven by currency tailwinds such as rupee depreciation.
Stock-specific concerns persist
At a company level, investor positioning remains selective. Infosys faces uncertainty around guidance amid geopolitical risks, even as recent acquisitions in insurance and healthcare IT have been viewed positively.
Tata Consultancy Services continues to see muted interest despite valuation comfort, as investors await clearer signs of growth recovery. Meanwhile, Wipro remains weighed down by account-specific challenges.
In the mid-tier segment, LTIMindtree is preferred over Mphasis, though recent cuts in growth guidance have tempered enthusiasm.
A sector at an inflection point
For investors, the India IT story is no longer a broad-based growth bet. Instead, it is increasingly becoming a technology selection play-where AI readiness, service mix, and execution discipline are emerging as key differentiators.
While macro risks continue to cloud visibility, the report sees the sector's next phase may be defined less by cyclical recovery and more by how effectively companies navigate the AI transition.
Published by HT Digital Content Services with permission from TechCircle.