The widening gap between Silicon Valley and Dalal Street

The artificial intelligence (AI) boom has propelled US technology stocks to historic highs, while India’s IT (information technology) services sector is struggling to keep pace, slipping into one of its weakest relative phases since 2023.

- Mayur Bhalerao

On a rolling three-year basis, the Nifty IT index is now underperforming its US tech peers on the Nasdaq by over 40%. The US tech-heavy index has outperformed India’s Nifty IT since mid-2023—when the Al frenzy began—per an analysis by DSP Asset Managers.

Indian IT has seen periods of relative weakness against global peers before, but analysts say what sets the current cycle apart is that the gap is being driven less by currency movements or outsourcing demand, and more by who controls the Al value chain.

During the late-1990s tech boom, Indian IT strongly outperformed, with a relative rolling three-year gain peaking near 194% in 2000. This was followed by a sharp reversal after the dotcom crash, with underperformance rising to around 48% by 2002. A mid-2000s recovery faded during the global financial crisis, pushing the underperformance gap back to near 34%.