AI worry over IT overdone, however near-term ache more likely to persist: Seshadri Sen
AI narrative continues to dominate IT sentiment
The most important overhang for IT shares, in line with Sen, just isn’t fast earnings injury however a persistent narrative shift.
He famous that: “Sure, I imply, IT retains steady to get cheaper as a result of the narrative that AI is structurally injury into the sector is simply not going away. And the outcomes that come from the businesses usually are not wishing that…, are doing nothing to dispel that worry amongst traders.”
Whereas acknowledging that fears round synthetic intelligence are weighing closely on valuations, he argued that the acute pessimism might not be totally justified.
“I don’t assume that AI goes to wipe out the IT companies corporations. And to be truthful, the Accenture numbers I don’t assume there may be going to be a substantial amount of consensus earnings downgrades and their reduce in steering is pretty marginal, the midpoint is down simply 50 foundation factors.”
Nevertheless, he cautioned that sentiment will stay weak within the absence of clearer visibility.
“Within the subsequent three to 6 months, I don’t see a transparent set off for a re-rating.” On positioning, he added that he stays tactically cautious:
“We’ve got been barely underweight on IT… we’d keep that as a result of there aren’t any triggers within the subsequent three to 6 months for the sector to re-rate.”
Lengthy-term alternative, however short-term ache intact
Regardless of near-term weak spot, Sen highlighted that valuations are starting to look engaging.
“Most of them are buying and selling at implied progress multiples which at the moment are turning zero to barely destructive and really excessive free money stream yields.”
Nevertheless, he warned traders to not mistake valuation consolation for fast upside.
“If you’re keen to stay by short-term ache, then sure, it’s a good time to purchase… however subsequent three to 6 months a minimum of there might be ache.”
Monsoon influence: inflation contained, rural stress seen
Turning to macro circumstances, Sen addressed issues round a weaker monsoon and its influence on markets, particularly consumption and financials.
He famous that inflation dangers are more likely to stay contained: “There are sufficient buffer shares and… policymakers have managed to maintain a lid on inflation. You aren’t going to see inflation go as much as 8%, 9%, 10%.”
Nevertheless, rural demand stays a key monitorable:
“There might be pockets the place you will notice demand slowdown, somewhat little bit of a destructive shock on progress within the shopper basket.”
At a broader stage, he believes city consumption and non-agri earnings will proceed to dominate market course.
Portfolio stance: consumption, industrials and choose financials
On positioning, Sen highlighted a choice for growth-oriented home themes. “Our key overweights are consumption extra on the discretionary facet and industrials.”
He additionally stays constructive on choose monetary segments:
“Small and midcap financials which have seen wave of FDIs coming in… the valuations are on the fitting facet.” Moreover, he flagged continued curiosity in internet-led companies and choose cyclical “post-war” trades similar to OMCs and cement.
Earnings outlook bettering into FY27
On earnings trajectory, Sen stays broadly optimistic, particularly for large-cap indices. “We predict Nifty earnings is broadly steady.”
He additionally highlighted bettering breadth in company progress: “The share of corporations that are delivering 25% plus progress goes up from 31% in FY26 to 41% in FY27.”
Flows: FII warning persists, however worst could also be behind
On international flows, Sen identified that whereas structural issues stay, the depth of promoting could ease. “I’m not certain that flows will come again in a rush at this cut-off date… However a minimum of the promoting will cease.”
Home inflows, nonetheless, proceed to offer robust assist.
RBI more likely to keep on maintain
On financial coverage, Sen expects stability fairly than additional motion from the central financial institution. “The RBI will keep on an prolonged pause from right here. There isn’t any cause to chop.”
He emphasised that transmission of earlier price cuts, fairly than contemporary easing, would be the key theme going ahead.
Backside line
Markets are at present caught between competing forces — a deep valuation reset in IT, a stabilising macro setting, and bettering earnings breadth heading into FY27. Whereas near-term volatility stays, particularly in export-linked sectors, home demand themes and financials proceed to anchor broader market expectations.
