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”
Just my thoughts.
These headwinds come and go, and this sector will adapt and evolve.
In the coming quarters and few years how IT compabies evolve has to be watched and we may get these stocks for a good bargain. This is the time to start watching these companies and their moves and pitch in whenever its favourable.
IT environment has been been slowing in the last two to 3 years mainly on US interest rates and its rippling effects and AI is going to improve the IT services and the sector as a whole and people in IT are using AI to the advantage and its speeding up lot of things.
So its better to start watching this sector now and add when visibility is seen and it will probably be seen.
Good line of thought sir. Vidya
Seems like IT firms are doing trial and error and as you mentioned The “Double Bind” is Real.
HCL Tech’s margin sacrifice: Dropped to 16.35% due to aggressive AI hiring, with one-third of AI-focused team underutilized.
LTIM’s investment pressure: Facing margin compression from necessary AI upfront investments.
If thats the case, then the thematic funds IT MFs are still in Prime funds. Are they going to be reviewed ? or should we wait for this month end?
We are not removing them as things stand. They have a wider basket of tech stocks. Vidya
I apologize if it sounds too blunt – this article is little too late but too obvious. Question is not about whether elephants can dance but whether these sloths can even move. These orgs are anything but agile. Infact, one can even say that these became modern day PSUs over the last few decades – preferred choice of the educated masses for employment.
OTOH, one is yet to see anyone make good business by building LLMs. Seems like only the shovel makers are minting gold right now. IMO, one needs to look out for sharp management which can identify opportunity in a shifting environment and agile enough to pivot and pounce on it. I’d look for signs of demergers/spinoffs to get more agile. Not sure if LTIM fits this description but it hasnt moved much since merger still digesting the merger – so there’s that factor which makes it a good candidate.
Hello Sir, That’s perfectly fine. You are welcome to air your views. Thanks, Vidya
Infosys had rallied to 2000 last year. With a holding period of > 4 years , could we have timed the exit better given our entry price was around 1390?
The picture was very different last year (with BFSI expected to give a thrust). So it would have been a tough call to take for me 🙂 Even now,it is not a bad company. It just doesn’t fit our growth thesis any more. Thanks, Vidya
Thank you, Vidya & Sudharsan, for the insightful article. I agree that ‘size’ has become a disadvantage for large Indian IT companies in the face of AI disruption. I am hopeful that these giants will adapt, perhaps with strategic moves like TCS’s recent bench policies and workforce adjustments, to overcome these challenges.
This brings me to a key question about the mutual fund investments. In January 2025, Prime Investor recommended the HDFC Technology Fund, citing the strong performance of large-cap IT stocks at the time. The fund’s concentrated focus on large-caps was seen as an advantage. However, with your view now shifting, and a clear preference for mid-tier IT, should we reconsider SIP in this fund? I understand a formal review of your Prime Fund recommendations may be a month away, but since the fund is still listed as a ‘Buy,’ I’m looking for some immediate guidance. Has the fund’s strategy changed to align with the new market trend, or is it still heavily skewed towards large-caps?”
Hello Sir – we would not recommend SIPs in sector funds. At best buy on dips. On The active tech fund, yes it is a good question. With the HDFC fund well over a third is in midcaps and some exposure to telecom as well. So we do not want to remove that call as of now. thanks, Vidya
Have you factored in the impact on revenue and profits due to acquisitions while showing growth from June 24 to June 25 especially in Mid tier companies like Persistent, Coforge and Mphasis?
Yes, we have a put a foot note where it impacts. Having said that, growth is still growth organis or inrganic for an IT firm. rowing inorganically when there is slowdown is a strategy by itself. thanks, Vidya
Thanks for the well Summarized details. Though there significant headwinds due to AI disruption, falling Rupee across $ will provide some tailwind . Wanted to check your inputs on $ impact on large cap IT ?
Thank you sir. We are more worried about the business growth itself and less worried about sollar impact, to put it differently. Vidya
Thanks for the Article.
Would like to check the prime recommendations on IT Funds in ETF/Mutual Fund space. Is it a hold or exit?
On the active funds 0 They continue in our list as of now as they hold mid tier IT as well. ETFs – hold till we provide any call in our qurterly review. Vidya
Any comments on TCS ?
We don’t have a call on the stock and it is not far removed from Infosys’ position in terms of challenges. PErhaps Infosys is stilla notch better in my view. Vidya
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