‘Nifty may scale new peaks in 12-18 mths as valuations turn attractive’

The Nifty 50 could touch fresh highs over the next 12-18 months as valuations hover below long-term averages and foreign selling shows signs of easing, said Nikhil Ranka, chief investment officer (CIO)-equity alternatives at Nuvama Asset Management.

- Apoorva Ajith

However, he cautioned that India’s information technology (IT) companies are staring at an earnings cut, likely to begin in fiscal 2027-2028, amid concerns that artificial intelligence (AI) will compress billings and revenue growth. Edited excerpts:

There is a clear belief amongst market participants that there will be a reduction in the man-hour effort required for IT services. If you see the current model of IT services, it is a per man hour billing that happens for almost 70% of the projects, now because of AI, if a particular project initially needed 100 hours of work and today that is getting down to say 30 hours, then obviously there is a deflation in terms of the effort that is required and hence lower revenue potential. Whether the equivalent budget will go into newer projects and expand the addressable market to that extent is difficult to predict at this time.

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My sense is that there is definitely going to be some slowdown in overall revenue growth for IT companies. If you look at the last four-five years, most of the large-cap Indian IT companies, in dollar terms, have not grown more than high single digits. Comparable US peers in the IT sector have seen a severe de-rating in PE (price to earnings) multiples, thereby capping upside potential for domestic names. Historically, we have seen that when growth visibility declines, PE multiples take a hit.

Do you expect the bearish sentiments in IT to sustain, or are you expecting some upside movement in the future?