India's Nifty IT Index Down 28% YTD, Worst in 16 Years; Largest Fund Buys the Dip
Miles Bennett
India's Nifty IT index has plunged roughly 28% this year, its worst performance since 2008; yet PPFAS, the country's largest actively managed equity fund, is loading up on IT services stocks, betting the market has overpriced AI's threat to outsourcing.
How bad is the sell-off, and what's driving it?
The Nifty IT index is down about 28% year-to-date. Its constituents include Tata Consultancy Services (TCS) and Infosys, India's two largest IT outsourcers.
The index's forward P/E for 2026 has compressed from 21.2× a year ago to 15.7× — a historical low.
This means → the market is not just cutting earnings estimates; it is re-rating the entire sector's business model, pricing in a future where AI systematically shrinks demand for traditional IT outsourcing.
Accenture's recent downbeat guidance amplified the sell-off. The sector only stabilized this Monday.
Who is buying into the drop, and how much?
PPFAS Mutual Fund's Flexi Cap Fund — $14.9 billion in assets — is India's largest actively managed equity fund.
Per Bloomberg, the fund has been steadily adding Indian IT services stocks over the past three months.
Tech now accounts for roughly 19% of the portfolio. About half of that is in IT services; HCL Technologies and Infosys are both top-ten holdings.
The other half sits in overseas tech names like Alphabet and Amazon. In plain terms = this is not a pure India-IT bet — the fund is positioned on both sides of the AI disruption ledger.
What is the contrarian thesis?
Chief investment officer Rajeev Thakkar sees the pessimism as overdone.
His view: the extreme scenario — all work pulled in-house, no outsourcing, AI so efficient no human touch is needed — is unrealistic.
This means → AI may automate some software-development tasks, but it can also deliver productivity gains and cost savings to IT services firms — gains those firms can partly keep for themselves.
In plain terms = AI is not necessarily outsourcing's gravedigger; it could be its efficiency booster. The question is who adapts fastest.
Where is the money coming from — and is IT the only buy?
The fund is deploying cash reserves previously parked in bonds and money-market instruments.
Bond and money-market allocation fell from a peak of 23.77% last April to 14.03% as of May; core equity rose from 67.30% to roughly 70%.
This reflects a deliberate shift: Thakkar had kept cash high because equity valuations were stretched. The market pullback gave him the entry point to convert idle cash into equity exposure.
IT is not the only addition — the fund also increased positions in financials, utilities, and coal mining.
Can this bet pay off?
The entire trade rests on one assumption: the market has overpriced AI's disruption of outsourcing.
This means → if India's IT majors can show in the next few quarters that AI delivers productivity dividends rather than demand destruction, the current 15.7× forward P/E will look like a bargain.
But if AI substitutes outsourcing demand faster than expected, the 28% drop may be just the beginning.
In plain terms = this is a contrarian wager — not that AI won't work, but that its impact on outsourcing is less lethal than the market assumes.
Content is for reference only, not financial advice.