Prime Stock Update: Indian IT Sector at a Crossroads – Change in investment approach
Indian IT is under pressure in 2025— pause or a fresh opportunity for investors?
Vidya Bala
Vidya Bala is a co-founder of PrimeInvestor. Vidya helped build one of the country’s earliest robo-advisory solutions in the country in her earlier role at FundsIndia. A Chartered Accountant by qualification, she has more than 18 years of experience, of which over 15 were spent analyzing the markets. LinkedIn | Twitter
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24 thoughts on “Prime Stock Update: Indian IT Sector at a Crossroads – Change in investment approach”
Every decade there is a new development, and an obituary is given for IT, AI can be a game changer, but in my view ROE and EPS has improved, if price corrects further, we will have added margin of safety.
Besides jumping ship and shifting to mid-tier companies bears the risk of Capital erosion, with FD returns soon getting the better of Nifty.
We have not given any obituary to the sector or large IT players. We have simply looked at opportunity loss and relatively better opportunities. We have in fact said people can continue to hold Infosys, esp. if they hold large positions considering the regular income steam 🙂 Vidya
Dear team
Can you analyse the implication of passing of “US HIRE ACT” and share your insights. What is the probability of it passing? Is it something important to worry about for Persistent Software’s business trajectory?
Thanks
Anand
I personally don’t think it is going to happen but if you wish for me to build a scenario on it here it is: • The HIRE (Halting International Relocation of Employment) Act, recently introduced in the US Senate, proposes a 25% excise tax on payments by US companies to foreign entities, directly targeting outsourcing to countries like India.
• The Act also bans tax deductions on these outsourcing expenses, further increasing the effective cost of offshoring.
• The collected funds would be allocated to workforce development, apprenticeship, and reskilling programs for US citizens.
Implications for Indian IT
• The US accounts for over 60–70% of India’s IT export revenue, and Indian IT majors such as TCS, Infosys, and Wipro depend heavily on American clients.
• If implemented, the Act could:
• Significantly erode India’s cost and pricing advantage in the global IT services market due to higher taxes.
• Cause US firms to pause or renegotiate existing contracts and push for more onshore hiring or hybrid delivery models, increasing operational risks and costs.
• Impact tens and thousands of jobs in Indian Global Capability Centres (GCCs) established by US corporates in India.
• Lead to margin compression and greater volatility for IT stocks, as indicated by FII sell-offs and underperformance of the Nifty IT index.
• Smaller Indian IT and BPO firms are likely to be hit the hardest, given their dependence on cost arbitrage and thinner margins.
This is same product vs service debate which we had before coming in a different format. Companies doing critical businesses like Banking, Engineering will adopt AI just as an extended chatbox. But core functionality business will be nervous to adopt. To implement a proper system (ERP or Custom) it takes multiple years. Managing big projects with too many players is an Art and Indian big companies knows them well and plays them perfectly. If US fed reduces interest rate and gives breather to US Banks then BFSI segment will thrive again. Most big IT companies operate like multiple small entities. They always form groups to exploit new trends. Same approach they followed to move from Mainframes to ERP’s, to Cloud, Data Engineering etc. As technology trend picks up there will be dedicated team (Treat it as small company) with competence center in each of the big companies. Patience needed on big IT companies. Personally I am buying TCS, HCL, Wipro (Possible turn around as they promoted their employee as CEO instead of external hiring) & Infy. Be careful on mid level IT companies. I have invested in ICICI backed 3i Infotech (Midcap IT at that time) and that whole investment is my teaching fee to mr Market.
Big companies are doing business with most of the Companies around world. As domain specific AI implementation happens these companies will get business and benefit. Automation is not new thing but getting that adopted is always a big challenge.
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