Is it time to buy IT stocks yet? BOB Capital’s Girish Pai answers

Tier-one IT stocks are trading close to their long-term average valuations, based on consensus estimates and a review of the past decade, said Girish Pai, Research Analyst and Head of Institutional Equity Research at BOB Capital Markets. He said stock prices could decline another 10-15% if earnings stay under pressure, which may create a potential entry opportunity for investors.“It’s up in the air as to whether that’s going to happen at all or not. But if it does happen, then probably a 10-15% lower number from a stock price perspective would be a good entry point,” Pai added.

Pai said the Indian IT services industry has already gone through three years of slow growth, with FY26 expected to mark the third such year. He noted that there is still an expectation of some improvement in FY27, with revenue growth likely to pick up by around 150–200 basis points.
However, Pai cautioned that the bigger concern for investors is whether this recovery can sustain into FY28 and FY29. The growing discussion around agent-based AI has introduced fresh uncertainty, particularly around long-term earnings growth.Read Here | Tech sell-off sparks AI worries over Indian IT services: Arvind Sanger, Moshe Katri debate outlook

On the other hand, Pai pointed out that global packaged software companies have already felt the impact of AI over the past 12 to 24 months, with stock prices falling sharply despite steady earnings delivery. He warned that Indian IT services firms are not entirely insulated, as many now have sizeable packaged software implementation businesses.

If Fortune 500 CIOs and CFOs delay or scale back expensive software purchases due to cost concerns or uncertainty around AI’s impact, it could create downstream pressure on IT services demand.

As a result, Pai said the market is currently witnessing a contraction in valuation multiples rather than an immediate hit to earnings. However, he added that if these concerns persist, earnings pressure could emerge over time.

Pai urged investors to remain selective rather than paint all IT companies with the same brush. While some mid-tier IT firms have delivered strong performance in recent years, he remains cautious on names with stretched valuations or acquisition-related risks.

He prefers BPO-focused companies and named Firstsource and eClerxas stocks he is more comfortable with at current levels.

In contrast, he expressed caution on Persistent Systems due to valuation concerns and Coforge because of acquisition-related return dilution

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