He explains that earlier waves of technology tended to boost Indian outsourcing, but “AI is potentially negative, and that is where the issue is. On top of that, we had the economic uncertainty that has come up because of the tariff war.”
Shah sees a weaker outlook for major IT players — Tata Consultancy Services (TCS), Wipro, and Infosys — pointing out that their recent guidance and commentary confirm the slowdown.
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Shah draws a comparison between the current environment and the start of the COVID-19 pandemic in terms of valuation. “I don’t think that excitement is there today. There is still a fair bit of question marks on the growth outlook.”
In terms of his investment strategy, he mentioned that he has a very small exposure to IT stocks. While valuations are becoming more attractive, “the growth is a question mark. So we would continue to sit away.”
For investors holding IT stocks, he advised, “If somebody is overweight, it is worth still correcting, especially in the expensive leg of the sector.”
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To help spot genuinely good value, Shah offers a simple rule of thumb: “unless you are seeing an IT stock available at 5-6% free cash flow yield, be careful, you probably will see more downside.” Free cash flow yield is the annual cash a company generates after expenses, expressed as a percentage of its share price; a higher yield can signal better value.
He adds that “the likes of Infosys are at that number, but the question mark is growth.” By contrast, many high‑growth mid‑cap IT firms haven’t yet reached that yield threshold, so “there could be more downside.”
For the full interview, watch the accompanying video
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