India IT’s Fall from Peak: When Does Cheap Become Investable

The Nifty IT index sits at roughly 29,384 as of June 3, 2026, against a 52-week high of 40,301 reached less than a year ago (per NSE data). That is a decline of approximately 27% from peak, with the one-year return figure standing at -19.9% (per our market data as of June 4, 2026). At the same time, every honest analyst covering Indian IT will tell you that revenues are growing – quarterly aggregate sales of Nifty IT companies have risen from roughly Rs 1.25 trillion in early 2021 to over Rs 2.2 trillion in the most recent quarter, and profitability is near record highs. So a sector where fundamentals are moving in one direction and the stock price in the other is the definition of a question worth asking seriously.

What Is the Market Actually Pricing In Right Now?

A PE of approximately 20x on the Nifty IT index, against a long-term historical median of 22.2x (per Business Standard, June 3, 2026), means the market is pricing this sector at a discount to its own history. That alone does not make it cheap in an absolute sense – 20x earnings for a sector facing AI-driven revenue deflation is still not a distressed valuation – but it does mean the pessimism is already reflected to a meaningful degree. The more important question is what rate of earnings growth is embedded in that 20x, and whether the actual delivery over the next two years will beat or miss it.

The consensus view, from the ICICIdirect sector analysis published in 2026, expects AI to cause roughly 2% to 3% annual revenue deflation in traditional IT services through FY26-FY28, as clients use AI tooling to reduce the headcount required for the same output. Recovery is projected from FY28-29, when the new AI-augmented service lines reach scale. If that timeline holds, the current PE contraction is a forward-looking earnings fear that will eventually reverse, and the 20x entry point will look attractive in hindsight. If AI disruption is deeper and faster, the earnings delivery misses and the PE compression continues.

Interestingly, the opposing view is also gaining traction. Analysts like Amit Khurana from Dolat Capital have upgraded Indian IT, arguing that the market is underpricing the double-digit net earnings growth that rupee depreciation and recovery in client spending will deliver by FY27. The sector is not a monolith, and the spread of opinion itself tells you that the outcome is genuinely uncertain, not consensus-priced.

Does the Rupee Move Change the Investment Calculus?

It changes it more than most investors are factoring in right now. Indian IT companies earn a very large proportion of their revenues in US dollars and report profits in rupees, so a weaker rupee mechanically inflates reported earnings without any change in business performance. USD/INR is currently around 95.76 (as of June 4, 2026, per our market data), compared to an exchange rate closer to 84-85 a year and a half ago. That is a depreciation of roughly 13%, and for a company deriving 80-90% of revenues from the US and Europe, this is not a marginal tailwind.

Put this in numerical terms: if an IT company earned Rs 1,000 crore in FY24 with an exchange rate of 84, and delivers the same dollar revenue in FY26 with a rate of 95, reported INR profits go up roughly 13% with zero operational improvement. That is before any volume or pricing growth. Hence the Dolat Capital argument that the market is “underpricing” the earnings tailwind has genuine merit, even if it does not resolve the structural AI question.

The risk to this thesis: the rupee is not a one-way bet. RBI intervention, a reversal in dollar strength, or a sharp improvement in India’s current account could cause the rupee to appreciate, reversing this tailwind. Investors who buy IT purely as a rupee depreciation trade are making a currency call alongside a sector call, and the two risks stack up rather than offset.

Large-Cap IT vs Midcap IT: Where Is the Better Risk-Reward?

This is where the conversation becomes genuinely interesting. Large-cap IT – the TCS, Infosys, Wipro tier – benefits from brand recognition, large client relationships, and the ability to invest in AI capabilities at scale. The risk is that their sheer size makes it harder to grow revenues quickly, and their valuations, even after the correction, reflect years of premium pricing. Having said that, they also have the balance sheet depth to absorb a two-year rough patch and emerge without permanent damage to their competitive position.

Midcap IT companies like LTIMindtree, OFSS, and eClerx (named in the Dolat Capital upgrade) sit in a different position. Their valuations have compressed more sharply in percentage terms, they often have niche specialisations in areas like banking technology or analytics that are less exposed to generic AI automation, and the management teams are typically more agile in pivoting to new service lines. The Dolat Capital thesis specifically names these three as tactical opportunities, citing depressed valuations and currency tailwinds as the primary drivers.

No specific company recommendation follows from this analysis – individual stock selection depends on factors well beyond sector-level observations. The point is that the investment case is not uniform across the IT universe, and blanket sector calls (“IT is cheap, buy all of it” or “AI will kill IT, sell everything”) miss the differentiation that actually drives returns in a sector with this much internal variation.

What Would a Normalisation to Historical PE Mean for Returns?

A simple PE normalisation exercise is useful even if it does not constitute a prediction. If Nifty IT returns to its historical median PE of 22.2x from the current approximately 20x, purely through multiple expansion with no earnings growth, that would imply roughly 11% upside in index terms. If it returns to the 25-27x range that characterised the 2020-2022 bull period, the upside is considerably larger, but those valuations required a narrative of above-market earnings growth that the current environment does not obviously support.

The more grounded scenario: earnings grow at a moderate 10-12% annually (helped by rupee depreciation and gradual recovery in client budgets), while the PE multiple re-rates from 20x to something closer to 22-23x over two years. That combination could produce returns meaningfully above the broader market from current levels. Interestingly, this is not a wildly optimistic scenario – it is closer to a base case that assumes no new negative surprises on AI disruption or global demand.

Peter Lynch’s observation that “everyone has the brainpower to follow the stock market; if you made it through fifth-grade math, you can do it” applies to this kind of simple scenario analysis – the arithmetic is not complicated. What is complicated is making the right assumptions about earnings trajectory and the time over which valuation normalisation occurs. Both require judgment that goes beyond a DCF model.

A Framework for Deciding Whether to Add IT Exposure Now

Rather than a yes-or-no recommendation, a few questions help frame the decision for individual investors. First, what is your current IT exposure relative to your target? If IT was 15% of your equity portfolio at the peak and has fallen to 10-11% after the correction, you already have meaningful underweight – the question is whether to rebalance toward target or let it stay underweight while the earnings picture clarifies.

Second, are you comfortable with a 2-3 year holding horizon through the AI disruption period? The analysts who see value in IT from current levels are almost all thinking in a FY27-FY29 timeframe. If your capital need is shorter, the sector’s path to recovery through the AI transition may not align with your liquidity requirement.

Third, are you selecting based on quality – balance sheet strength, client diversification, exposure to growth segments like BFSI technology and cloud services – or are you buying the index passively? Our analysis of listed Indian IT companies suggests that the quality differential within the sector is as wide as it has been in many years, and passive index allocation captures a lot of names that do not deserve the recovery thesis.

To sum up, India IT’s correction from its 2025 highs has brought valuations to below the long-term historical median for the first time in several years, and the rupee depreciation tailwind adds a dimension that many investors are underweighting. Having said that, AI disruption is a real structural headwind – not a quarterly blip – and recovery timelines from FY28-29 require patience that not all portfolios can accommodate. The correct position for most HNI portfolios is probably not zero IT and not full allocation, but a calibrated, quality-screened exposure that can benefit from the eventual normalisation without requiring perfect timing on the AI transition.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should consult their financial advisors before making investment decisions.