What lies ahead for Indian IT as brokerages reevaluate growth prospects?

The outlook for Indian IT stocks is becoming increasingly uncertain as concerns about the impact of artificial intelligence (AI) on traditional business models grow. Major brokerages like Nomura and UBS are reevaluating their forecasts for the sector. Nomura argues that fears around disruption may be overstated, noting the challenges of replacing established IT service models with new technologies. They emphasize that enterprise clients prioritize risk management over cost-cutting, leading to a cautious approach towards adopting unproven solutions. Despite the recent sell-off in IT stocks, Nomura suggests that high cash flows and dividend yields may provide a safety net, with their top stock picks being Infosys, Coforge, and eClerx. Meanwhile, UBS highlights concerns regarding the long-term cash flow assumptions that underpin stock valuations, urging companies to adapt swiftly to new pricing models and invest in innovative solutions to maintain their market positions. Both brokerages stress the need for IT firms to evolve in the face of rapid technological advancements and changing market dynamics, as they navigate a transition from traditional staffing to more solution-oriented and outcome-based models.