Indian IT stocks have given investors plenty of reasons to worry.
By the end of June 2026, the Nifty IT index was down 30.6% for the year and 32.5% over the previous 12 months. Its five-year price-return CAGR had also slipped to negative 2.05%. The sector staged a sharp recovery in July, gaining 16.7%, but the bounce came after a prolonged period of underperformance.
The weakness reflects deeper questions about the future of Indian IT services. Artificial intelligence is threatening the traditional labour-intensive outsourcing model, clients have been cautious about discretionary technology spending, and multinational companies are increasingly building their own Global Capability Centres, or GCCs, in India.
Against this backdrop, Ridham Desai, Morgan Stanley’s Chief India Equity Strategist, has a contrarian argument: AI could ultimately become an opportunity rather than a threat for Indian IT services companies.
Speaking to Sonia Shenoy on The Money Mindset podcast, Desai acknowledged that the sector could remain subdued while companies work out how AI changes their technology requirements and spending. But he believes the longer-term impact could be very different.
Desai explains his argument with a simple analogy.
Imagine you need to drive a screw into a wall. Until now, you have been using a screwdriver. Then you get a power tool that allows you to do the same job far faster.
AI, in his analogy, is that power tool.
IT services companies have traditionally used software code as a key input to solve problems for customers. But the customer is not really buying the code. It is buying the solution.
If AI can produce code much faster and more cheaply, fewer people may be required for the same project and the price charged to clients could fall. That is the immediate risk facing IT services companies.
But Desai argues that cheaper technology could also dramatically increase the amount of technology businesses consume.
He compares AI with the earlier transition to cloud computing. As computing became cheaper, the market did not shrink. Instead, many more companies and projects could afford to use technology, helping create a strong growth period for Indian IT services.
Desai believes AI could have a similar effect on a much larger scale.
Put simply, IT companies may earn less for each unit of work, but the amount of work available could increase significantly.
His screwdriver analogy extends further. Having a power tool does not necessarily mean you no longer need a carpenter. Companies will still need technology providers that can understand business problems, integrate systems, protect data and turn AI into workable solutions.
That does not mean the transition will be painless. Desai expects disruption, while the expansion of GCCs is also taking some work that previously went to IT services companies. The critical question is whether the new demand created by AI eventually grows sufficiently to compensate for pressure on the industry's existing business model.
The conversation also touches on a wider concern among equity investors.
Shenoy points out that investors have gone through a lengthy period with little return from the Indian market and asks about the opportunity cost of remaining invested when other markets are doing better.
Desai's response is that equity returns should not be expected to behave like fixed-deposit returns.
A fixed deposit generates returns relatively steadily. Equities do not.
Stock-market returns, he argues, tend to be concentrated or bunched. A market can remain flat for two or three years and then deliver a substantial part of its long-term return within a much shorter period. He recalls several such phases during his career, including the prolonged weakness that followed the technology bubble in the early 2000s.
That is why Desai sees equities as a long-duration asset. In his view, judging an equity investment solely on the basis of one or two years of returns can give an incomplete picture.
The same thinking underpins his view of Indian IT. The sector is undoubtedly going through disruption. But Desai's argument is that the changes now hurting its traditional business model could also create a much larger market for technology services once the AI transition settles.
Whether Indian IT companies can successfully capture that opportunity will determine whether the present slowdown is a lasting structural problem or another major transition for an industry that has reinvented itself before.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Investors should consult a qualified financial adviser before making investment decisions.