Nifty IT Falls 2% in November as AI Relief Fails to Lift Legacy
India's Nifty IT index has slipped nearly 2% in November after a 17% jump in October. Earnings worries at outsourcing firms outweigh any relief from the AI-stock sell-off across Asia, according to Choice and Kotak research.
India's Nifty IT index has fallen nearly 2% so far in November, after surging more than 17% in October, as AI relief fails to lift legacy IT stocks weighed down by earnings worries. The index tracks the country's listed technology services firms.
The drop stands out against the wider market. The Sensex and Nifty, India's main benchmarks, climbed more than 10% in the run-up to Diwali and its immediate aftermath, helped by renewed buying from foreign funds.
AI trade sells off across Asia
Legacy IT stocks have stagnated even as AI-heavy bets slumped. Since the start of October, South Korea's Kospi has lost around 20% and Taiwan's stock index around 13%. Japan's Nikkei is down 10%, and the Nasdaq Composite has lost 6%.
The Shanghai Composite and Hang Seng have fallen 4.4% and 2.4%, respectively. That raises a question: will earnings concerns keep prices and valuation multiples in check at outsourcing firms, despite the churn elsewhere?
Uneven September-quarter results
Choice Institutional Equities said the companies it covers reported average sequential revenue growth, meaning growth over the prior quarter, of around 5.4% for tier-2 players. Tier-1 companies managed nearly 1.1%.
Coforge led the mid-tier group with 10.9% growth, followed by Persistent Systems at 7.8%. Tech Mahindra and HCLTech led among the larger companies.
Deal bookings are healthy, but revenue is slow to follow. Choice cited phased transitions, staggered project ramp-ups and longer client decision cycles. Shorter AI projects, typically one to two quarters, also give less visibility than the large multi-year contracts the sector is used to.
Pricing pressure from AI
Clients increasingly use AI to raise productivity and cut costs, and they want a share of the savings when contracts renew. Kotak Institutional Equities estimates gross deflation, or falling prices, of around 7% and net deflation of 3.5%.
New AI business has not yet fully offset that pressure in traditional services. Kotak expects margins at large IT companies to stay largely stable, with rupee depreciation providing some support. It warns that pricing pressure and AI investments could weigh on profitability.
Kotak also expects Infosys to lower its FY27 revenue growth guidance to 1.5-2.5%.
Sandeep Gogia, managing director and co-head of investment banking at Equirus Capital, sees openings. He said pressure on enterprises to earn returns on AI spending, along with worries over safety, security and token-cost optimization, could create fresh work for IT services providers.
Gogia pointed to data engineering, application modernization, cloud migration and cybersecurity. "Integration of systems of records and data systems with systems of intelligence and AI models is not plug and play," he said.
