Why should you avoid IT stocks in 2026? Market expert explains

Market veteran Vikram Kotak has advised caution on IT stocks in 2026, citing structural challenges, global slowdown concerns, and limited earnings growth visibility.

Kotak, co-founder and managing partner at Ace Lansdowne Investments, said he remains “very negative” on the IT sector and currently holds no exposure in his portfolio.

“I have been negative on IT for the last two years, and I have zero portfolio holdings in the sector,” he said. He indicated that despite stability in recent earnings and deal wins, the overall outlook for the sector remains weak due to multiple headwinds.

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AI disruption and changing demand

Kotak said the rapid rise of Artificial Intelligence and automation is changing the nature of demand for IT services.

“AI and automation have completely changed the requirement dynamics. A lot of backend and low-end work, where India has traditionally been strong, is likely to shrink or get saturated,” he said.

He added that Indian IT companies have largely focused on backend services and have not significantly moved up the value chain in emerging areas like AI-led innovation.

“India has been an IT hub, no doubt. But we have largely done backend work. We have not moved aggressively into AI-led innovation. That is a concern going forward,” he said.

US slowdown risks

Kotak also flagged concerns around the global macro environment, particularly the United States, which is a key market for Indian IT companies.

“I believe the US economy may see a slowdown for the first time in a while. Given the debt levels and recent data trends, there could be a one-to-two-year slowdown phase,” he said.

He added that any slowdown in the US could lead to cuts in IT budgets by global companies, directly impacting revenue growth for Indian IT firms.

“If the US slows down, IT budgets will also be cut. That will affect growth for the sector,” he said.

Strong fundamentals but weak returns outlook

Kotak said Indian IT companies continue to have strong balance sheets, good corporate governance, and steady cash generation.

However, he added that these positives may not translate into meaningful stock returns in the near term.

“Companies are good, balance sheets are strong, and they generate cash. But I don’t think money will be made in the sector easily,” he said.

Nifty IT under pressure

The Nifty IT index remains under pressure, trading at 31,030.60, down 605.60 points or 1.91 per cent.

The index is about 9,270.80 points, or nearly 23 per cent, below its 52-week high of 40,301.40, indicating sustained weakness despite a recent short-term recovery.

On a time-frame basis, the index has risen 1.29 per cent over the past week and 6.74 per cent in one month. However, it has declined 18.85 per cent in three months, 12.17 per cent in six months and 18.71 per cent so far in 2026. Yearly, it is down 5.22 per cent.

Range-bound markets, selective approach needed

On the broader market, Kotak said equities are likely to remain range-bound with limited upside and downside. “Markets may not see a big rally or a sharp fall. We are likely to remain in a broad range,” he said.

He added that stock selection will become increasingly important as the broad-based rally seen in previous years fades. “Earlier, almost everything was going up. Now, only select stocks will perform. The number of outperformers in a portfolio will shrink further,” he said.

Kotak also highlighted rising input costs and currency depreciation as additional risks for corporate earnings in India. He said elevated crude oil prices and a weaker rupee could impact inflation and margins, limiting overall earnings growth.

“Earnings growth may moderate to 8–10 per cent, compared to earlier expectations of 15–16 per cent,” he said. He advised investors to remain selective and avoid chasing high-growth themes without strong visibility.

“Careful stock selection and sector allocation will be key. One cannot blindly invest in high-growth stories or IPOs now,” he said.

IT Stocks in 2026

Among key stocks, Wipro has gained 3.71 per cent in one week and 3.55 per cent in one month, but is down 23.47 per cent year-to-date and 14.66 per cent over one year.

HCL Technologies has risen 3.40 per cent in one week and 9.48 per cent in one month, while limiting losses to 11.23 per cent in 2026 and posting a 4.35 per cent gain over one year.

Tech Mahindra has declined 0.73 per cent in one week but gained 7.96 per cent in one month. The stock is down 10.50 per cent year-to-date but has delivered a 12.22 per cent return over one year.

Tata Consultancy Services has risen 1.98 per cent in one week and 4.67 per cent in one month, but remains under pressure with a decline of 21.83 per cent in 2026 and 21.92 per cent over one year.

Infosys has fallen 1.13 per cent in one week and gained 3.45 per cent in one month, while declining 20.76 per cent year-to-date and 8.38 per cent over one year.