Don’t make the mistake of writing off the IT sector in 2026: Vikas Khemani

After a year marked by record overseas sales of Rs 2.32 lakh crore in 2025, the highest ever in Indian capital markets, IT services emerged as the biggest drag, accounting for nearly Rs 80,000 crore of the outflow. The sector was hit by a 12% decline in the Nifty IT index, amid rising concerns over global technology spending due to Donald Trump’s policy changes, and investor anxiety over AI-induced disruption.The question investors are asking is: will 2026 be better? Carnelian Asset Management & Advisors founder Vikas Khemani suggests concerns about AI-led disruption are overblown. In an interaction with ET Now, the market veteran said he believes the IT sector has strong long-term potential. Every IT company will have to refocus, but that has been the case with every technology transition – whether Y2K, ERP, digitalization or cloud migration. “Each time, Indian IT services have expanded both in scope and addressable market, and I believe this time is no different,” said Khemani.

From an enterprise perspective, implementing AI-related technologies requires the involvement of IT service providers – whether organizing data, enabling systems, selecting tools or deploying those tools.

The order books of all companies have held up well and the number of deals is still strong. “That doesn’t mean that every IT company will perform equally well; every transition creates new leaders and stock selection becomes crucial. However, writing off the IT sector as a whole would be folly. We remain positive, continue to hold select stocks and see IT services as a sector with good long-term potential,” Khemani said.

As for FII outflows, Khemani expects this to improve as global conditions evolve. “DII flows have been very robust, driven by steady SIP inflows. On the FII side, 2026 should be better as US yields start to decline and emerging markets pick up flows again. China-India trade rebalancing is largely behind us.”

He pointed out that the resilience shown by Indian markets despite continued financial outflows is a positive signal. “If FII flows turn positive, the impact could be significant. Markets are not yet pricing in that benefit, and it could even lead to a revaluation.”

Also read: Small cap investment funds labeled as worst performers of 2025. Will 2026 change the picture? On whether investors should focus on market capitalization or remain stock-specific, Khemani said his approach has always been bottom-up. “If we see sustainable earnings growth of 15 to 20% at a reasonable price over the next three to five years, we are happy to buy and remain invested. Short-term underperformance does not bother us if the long-term story is intact.”

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