AI narrative continues to dominate IT sentiment
The biggest overhang for IT stocks, according to Sen, is not immediate earnings damage but a persistent narrative shift.
He noted that: “Yes, I mean, IT keeps continuous to get cheaper because the narrative that AI is structurally damage into the sector is just not going away. And the results that come from the companies are not wishing that…, are doing nothing to dispel that fear among investors.”
While acknowledging that fears around artificial intelligence are weighing heavily on valuations, he argued that the extreme pessimism may not be fully justified.
“I do not think that AI is going to wipe out the IT services companies. And to be fair, the Accenture numbers I do not think there is going to be a great deal of consensus earnings downgrades and their cut in guidance is fairly marginal, the midpoint is down just 50 basis points.”However, he cautioned that sentiment will remain weak in the absence of clearer visibility.“In the next three to six months, I do not see a clear trigger for a re-rating.” On positioning, he added that he remains tactically cautious:“We have been slightly underweight on IT… we would stay that because there are no triggers in the next three to six months for the sector to re-rate.”
Long-term opportunity, but short-term pain intactDespite near-term weakness, Sen highlighted that valuations are beginning to look attractive.
“Most of them are trading at implied growth multiples which are now turning zero to slightly negative and very high free cash flow yields.”
However, he warned investors not to mistake valuation comfort for immediate upside.
“If you are willing to live through short-term pain, then yes, it is a good time to buy… but next three to six months at least there will be pain.”
Monsoon impact: inflation contained, rural stress visibleTurning to macro conditions, Sen addressed concerns around a weaker monsoon and its impact on markets, especially consumption and financials.
He noted that inflation risks are likely to remain contained: “There are enough buffer stocks and… policymakers have managed to keep a lid on inflation. You are not going to see inflation go up to 8%, 9%, 10%.”
However, rural demand remains a key monitorable:
“There will be pockets where you will see demand slowdown, a little bit of a negative surprise on growth in the consumer basket.”
At a broader level, he believes urban consumption and non-agri income will continue to dominate market direction.
Portfolio stance: consumption, industrials and select financials On positioning, Sen highlighted a preference for growth-oriented domestic themes. “Our key overweights are consumption more on the discretionary side and industrials.”
He also remains constructive on select financial segments:
“Small and midcap financials which have seen wave of FDIs coming in… the valuations are on the right side.” Additionally, he flagged continued interest in internet-led businesses and select cyclical “post-war” trades such as OMCs and cement.
Earnings outlook improving into FY27On earnings trajectory, Sen remains broadly optimistic, especially for large-cap indices. “We think Nifty earnings is broadly stable.”
He also highlighted improving breadth in corporate growth: “The share of companies which are delivering 25% plus growth goes up from 31% in FY26 to 41% in FY27.”
Flows: FII caution persists, but worst may be behindOn foreign flows, Sen pointed out that while structural concerns remain, the intensity of selling may ease. “I am not sure that flows will come back in a rush at this point in time… But at least the selling will stop.”
Domestic inflows, however, continue to provide strong support.
RBI likely to stay on holdOn monetary policy, Sen expects stability rather than further action from the central bank. “The RBI will stay on an extended pause from here. There is no reason to cut.”
He emphasized that transmission of earlier rate cuts, rather than fresh easing, will be the key theme going forward.
Bottom lineMarkets are currently caught between competing forces — a deep valuation reset in IT, a stabilising macro environment, and improving earnings breadth heading into FY27. While near-term volatility remains, especially in export-linked sectors, domestic demand themes and financials continue to anchor broader market expectations.
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