Stories
Indian IT Stocks Showing Signs of Recovery as Global AI Trade Cools
- •Valuations of Indian IT stocks have dropped to multi-year lows, signaling a potential bottoming out that is attracting investor interest.
- •Investors and foreign funds are shifting capital away from rallying Asian AI stocks toward Indian IT services as the global AI trade cools.
- •Jitendra Gohil of Bajaj Alts notes that while inflows are returning, an immediate sharp recovery is unlikely until AI-driven revenue growth becomes clearer.
- •Rising US interest rates and increasing bond yields threaten to increase the cost of AI infrastructure spending.
- •Many major tech hyperscalers are currently generating negative free cash flow after heavy capital expenditures, posing potential risks for future AI investments.
Key Questions Answered
Yes, valuations for Indian information technology stocks have dropped to multi-year lows and are showing signs of bottoming out as enthusiasm for global artificial intelligence investments fades. Large-cap funds and foreign investors are beginning to rotate capital back into the Indian IT sector.
Higher US interest rates, inflation, and climbing oil prices could push 10-year US government bond yields to between 5.5% and 6%. This would increase the cost of capital and make AI infrastructure investments less attractive for technology companies.
Hyperscalers carry around $630 billion in outstanding debt and are largely generating negative free cash flow after pouring trillions of dollars into heavy infrastructure spending. If US bond yields keep rising while cash flows remain negative, investors could see a severe slowdown in AI spending and capex cuts.
