The Indian IT sector faces significant challenges as artificial intelligence (AI) advances threaten to accelerate revenue deflation beyond the current market estimate of 2–3%. Bhavin Shah, Founder, CIO, and CEO of Sameeksha Capital, has warned that this could lead to both earnings downgrades and valuation cuts for IT companies.
Shah noted that productivity gains reported across the industry have increased sharply in recent months, suggesting a contraction in the revenue pool for IT services firms. “If it’s only going to be 2-3%, one can probably start to ignore it. But I suspect it will be bigger than 2-3%,” he said, highlighting concerns about the broader implications for the sector.
He elaborated that code development is just one element of the software lifecycle, with other critical components such as program design, documentation, testing, and quality assurance also being impacted by AI innovations. “AI is surprising us with the magnitude of impact it is having latest… in areas that we had earlier probably not even anticipated,” Shah added.
Even if profit margins remain stable, Shah cautioned that stagnant or declining revenues could significantly impact earnings per share (EPS). “When there is such a fast-moving technology having such a massive impact, many will prefer to stay on the sidelines and sort of wait it out — and that means there is definitely a risk for further multiple contraction,” he explained.
Shah also pointed out that rapidly evolving AI tools could delay decision-making for large clients. “By the time we finish a project, we might realize we could have done this differently based on the availability of some new AI tool,” he remarked, underscoring the uncertainty that accompanies technological advancements.
Reflecting this cautious outlook, Shah confirmed that Sameeksha Capital is re-evaluating its IT holdings, with a directional shift towards divestment. He stated that the firm has already significantly reduced its global technology exposure, warning that in the global AI race, “there are several horses, all spending very aggressively — and chances are not all will be winners,” which keeps both earnings and valuations under pressure.
The concerns articulated by Shah echo broader apprehensions within the market regarding the impact of AI on traditional IT revenue streams. As companies continue to adapt to this rapidly evolving landscape, investors may face heightened volatility and uncertainties in the valuation of IT stocks.
For more insights on the implications of AI in the IT sector, visit OpenAI or check recent updates on the Indian stock market trends. With technology continuously reshaping business processes, stakeholders are urged to remain vigilant and proactive in their investment strategies.
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