Rajeev Thakkar and Sankaran Naren See Value in IT Despite AI Disruption Concerns

Why It Matters

If AI reshapes demand, identifying undervalued IT firms could deliver outsized returns for investors while mitigating exposure to a sector currently out of favor.

Key Takeaways

• Naren calls IT valuation a contrarian call amid AI fears
• Thakkar cites Jevons’ Paradox: lower costs may raise usage
• Both managers stress ongoing re‑evaluation of AI impact
• Indian IT has survived Y2K, dot‑com, SaaS disruptions
• Fund allocations to IT remain low, highlighting contrarian opportunity

Pulse Analysis

The Indian IT services sector has endured a turbulent year, with global discretionary spending softening and AI‑driven anxieties compressing valuations. Investors have been wary, fearing that generative AI could replace traditional coding and erode demand for legacy services. Yet the sector’s earnings have shown resilience, and its price‑to‑earnings multiples now sit at historic lows, creating a fertile ground for contrarian bets. This backdrop sets the stage for fund managers who view the current discount as a pricing error rather than a permanent decline.

Veteran managers Rajeev Thakkar and Sankaran Naren argue that history favors the adaptable. Over three decades, Indian IT firms have navigated Y2K, the dot‑com bust, and the SaaS wave, emerging each time with new service models. Thakkar highlights Jevons’ Paradox: AI‑enhanced productivity can lower costs, spurring broader adoption and expanding total addressable markets. Naren, while acknowledging genuine disruption risk, frames the market’s punitive stance as a “value trap” that may be overstated. Their analysis suggests that AI could augment, not replace, service demand, especially as clients seek integration, migration, and managed‑AI offerings.

For investors, the implications are twofold. First, the sector’s low allocation in mutual‑fund portfolios signals a contrarian entry point for those comfortable with disciplined risk management. Second, the evolving AI narrative demands continuous monitoring; a sudden acceleration in AI‑driven automation could shift the sector from cyclical slowdown to structural disruption. By staying attuned to AI capex trends and client adoption patterns, investors can capture upside while preserving capital, aligning with the broader theme of “the art of not losing money.”