The IT sector's discount to historical averages and $2.54 trillion in foreign outflows signal a divergence that contrarian investors should test, says Bandhan AMC's Sirshendu Basu.
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Indian markets are showing unusually wide dispersion. The IT sector trades at a sizeable discount to its five-year average valuation. Several other sectors, including FMCG and automobiles, also sit below their historical averages. Foreign investors sold a net ₹2.54 trillion of Indian equities from January through July 2026, according to NSDL data. July itself recorded a return to net buying.
Sirshendu Basu, head of product management and strategy at Bandhan AMC Ltd, said the current combination of sectoral divergence, AI-led capital concentration, foreign outflows, and geopolitical uncertainty is producing situations worth investigating. He wrote in a Mint column that a contrarian investor must distinguish between a temporary setback and a structural problem.
Basu pointed to IT services as an example. AI could disrupt traditional delivery models, reduce demand for certain work, and affect pricing. But the market may not differentiate adequately between companies that can adapt and those whose models are more vulnerable. The potential contrarian opportunity lies in that distinction, not in assuming the entire sector will return to its old valuation.
Consumer companies may be dealing with weak demand or margin pressure. Financial businesses face shifts in competition, liquidity, and credit conditions. In each case, a sector-wide cloud can obscure meaningful differences in balance-sheet strength, cash generation, and management quality, he said.
Global capital flows have made these gaps more visible. Investor enthusiasm has concentrated around the AI ecosystem, benefiting markets such as the US, Taiwan, and South Korea. India's listed technology sector is more oriented toward IT services than product and semiconductor manufacturing, so it has been less directly associated with the AI boom. Foreign investors cut exposure to Indian equities while allocating capital to markets seen as more immediate beneficiaries of AI spending.
Basu said these outflows do not prove Indian stocks are mispriced. They suggest that some share prices may reflect global portfolio preferences as much as company-specific fundamentals. When selling is driven partly by the need to fund positions elsewhere, sound businesses can sometimes be marked down alongside weaker ones.
Geopolitics adds another layer of uncertainty. The West Asia war, volatile energy prices, tariffs, currency movements, and changing supply chains can quickly alter earnings expectations. The IMF's July 2026 update projected India's real GDP growth at 6.4% for 2026 while warning that renewed conflict, commodity volatility, trade fragmentation, and a correction in technology-led expectations remain important risks to the global outlook.
Basu said uncertainty can create mispricing, but it can also persist much longer than investors expect. AI may genuinely disrupt parts of the IT services industry. High energy prices may hurt margins and consumption. Foreign capital may continue to prefer AI-linked markets. Earnings may also take time to catch up with valuations, even after a correction.
A contrarian view needs more than patience, he said. It needs a sound investment thesis, strong financial and governance filters, evidence of improving fundamentals, and the discipline to recognize when the original argument is no longer valid.
The current combination of sectoral divergence, AI-led capital concentration, foreign outflows, and geopolitical uncertainty may produce more situations worth investigating. Whether they become successful investments will depend on fundamentals eventually closing the gap between perception and reality, a process that can be uneven and may require a long investment horizon, Basu wrote.
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