The worst is behind us for IT: large caps expect 15 to 20% upside as AI reshapes business models, says Deven Choksey

India’s IT sector appears to have put the worst behind it, with the next growth cycle likely to reward both large and mid-sized players – although big names may outperform in the short term, says Deven Choksey, MD, DRChoksey FinServ Pvt. Ltd.Speaking to ET Now, Choksey said last week’s strong rally in IT stocks is a reflection of deeper structural changes underway, rather than short-term sentiment.

Major IT costs are shifting from few resources to many resources: a new era is dawning

The biggest shift, according to Choksey, is the transition of major IT companies like TCS and Infosys from purely asset-light outsourcing models to building asset-heavy, capex-driven platforms, including data centers and AI development ecosystems.

He called this a ‘new era’ for Indian IT companies:

• Build AI-powered application development platforms
• Invest in product and platform-driven companies
• Put their large cash reserves toward long-term investments, rather than frequent buybacks.

This, he says, provides the basis for a revaluation, especially once clarity on US tariffs emerges.

An increase of 15-20% is possible if sector revisions are revised

With strong balance sheets, cash reserves and evolving business models, large IT companies could see an increase of 15 to 20% from current levels, Choksey said.

“The worst appears to be behind us… and a reappraisal is clearly possible,” he added.

Large caps are the first to perform better; middle class to follow

On whether large-cap or mid-cap IT is preferred, Choksey said a selective mix works best, but large-caps currently have an edge.

Large capitalization:

• More reasonably valued
• It previously underperformed, leaving room for recovery
• Backed by infrastructure-led growth strategies

IT in the mid-segment:

• Agile and solution-oriented
• But more expensive in terms of valuations
• It may take longer to participate in the upcycle

“In the short term, larger companies may be able to deliver better returns… mid-market names will join in, but with some lag,” he said.