IT Sector: The Worst Is Behind UsOn the prospects of IT earnings, Bagga said, “The worst of IT earnings are behind us and things should improve. Companies have been slow in AI adoption, but that is set to change.”
He added, “Workforces are being trained on AI and end use cases are being created. Results have been underwhelming so far—MIT research showed 95% of companies see no revenue increase after AI implementation, and McKinsey found 8 out of 10 companies haven’t seen benefits yet. As AI matures, more opportunities will emerge, and we expect a recovery next year.”
Broader Market Outlook: Consumption, Liquidity, and Infrastructure BoostsBagga pointed out factors supporting a market recovery: “Income tax cuts are adding consumption power. GST cuts have boosted spending. RBI’s liquidity and the 100-bps rate cut helped, and inflation is comfortable. Infrastructure spending is rising and the DA increase will stimulate consumption further.”
He noted India’s relative underperformance: “13 months of negative returns set us up for a better 12 months. The US and emerging markets did well, but India lagged. Any upside surprises could be significant given current market positioning.”
Triggers for Market UpsideBagga identified key triggers: “US tariff relief will boost sentiment, and earnings returning will drive markets. September earnings may be muted, but the real kicker will be December earnings.”On market positioning, he said, “Markets are still short, so any positive surprise will have a big impact. Valuations are better than 13 months ago, and segments look attractive. Markets typically rally before earnings improve, so positioning has to be positive.”ConclusionBagga’s insights suggest Indian IT and the broader equity market may be poised for a recovery, driven by AI adoption, macro easing, and policy measures, with potential market gains even before earnings fully rebound.
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