After a year of massive foreign selling, the Indian IT services sector saw the biggest pull‑back, but experts believe the outlook for 2026 is far brighter.
Record outflows hit IT services
In 2025, foreign investors pulled out about ₹2.32 lakh crore across Indian markets, the highest ever. Roughly ₹80 000 crore of that left the IT services space, pushing the Nifty IT index down 12%.
AI worries may be overblown
Vikas Khemani, founder of Carnelian Asset Management, says fears that AI will disrupt Indian IT firms are exaggerated. He points out that every major tech shift—Y2K, ERP, digitisation, cloud—has ultimately expanded the market for Indian IT services.
Strong order books keep the business humming
Despite the sell‑off, many companies still report healthy pipelines and new contract wins. While not every firm will perform the same, the sector as a whole continues to grow.
- AI projects need data organization, system integration, tool selection and deployment—all services provided by IT firms.
- Companies that adapt quickly could become the new leaders.
Future foreign flows could turn positive
Khemani expects foreign institutional investors (FIIs) to come back in 2026 as US interest rates ease and emerging markets look more attractive. Domestic investors (DIIs) remain steady, driven by regular SIP contributions.
Bottom‑up stock selection still matters
The analyst favors a bottom‑up approach: look for firms that can sustain 15‑20% earnings growth over the next 3‑5 years at a reasonable price. Short‑term weakness is less important if the long‑term story is solid.
Remember, this is perspective, not a prediction. Do your own research before making any investment decisions.