Phil Fersht, CEO and Chief Analyst at HFS Research, presents a more optimistic outlook for Indian IT services providers despite near-term challenges. As reported by CNBC TV18, Fersht believes the massive investments flowing into AI companies and infrastructure have pushed valuations to levels that could trigger a market correction. However, he emphasizes that such a reset would not necessarily hurt Indian IT services providers and may, in fact, strengthen their role in the next phase of AI adoption. Fersht described the current environment using a 'J-curve' framework — where revenues and margins typically compress before rebounding, noting we are in a J-curve, and we are in the down part of the J curve before it goes up, and it's going to be a tough few months as we play this all out.
According to a study conducted by HFS Research in partnership with Genpact, nearly $18 trillion of value remains trapped within Global 2000 companies, representing a significant opportunity for Indian IT firms. Fersht noted that only a small proportion of Global 2000 companies have achieved meaningful AI maturity, while businesses are investing heavily in AI infrastructure. The analyst emphasizes that bridging the gap between experimentation and large-scale adoption will require traditional services expertise and domain capabilities, which could benefit Infosys. He believes that large AI model developers alone will not be able to unlock the value trapped within enterprises, leaving significant opportunities for companies such as Wipro, HCLTech, Wipro and Cognizant.
Fersht believes the Indian IT industry needs to fundamentally shift its approach to capitalize on AI opportunities. As reported by CNBC TV18, he emphasizes that companies must shift from labour-driven economics to platform-led models and position themselves as partners that help enterprises build strong AI foundations rather than simply offering AI implementation services. He recommends that Indian IT companies should strengthen their presence in the mid-market segment before AI-focused firms establish a foothold there. While he expects growth to remain muted for the next six to nine months, Fersht believes the longer-term outlook remains favourable, stating the Indian IT industry needs to move away from the traditional headcount-based model and instead focus on delivering measurable business outcomes.
Despite near-term challenges, Fersht maintains a positive long-term view on the sector. As reported by CNBC TV18, he expects near-term growth remaining soft for the next six to nine months, but believes the longer-term outlook remains positive. The analyst noted that market correction later this year is expected, but he sees it as a necessary shift that could bring valuations closer to reality and redirect investor attention towards firms with strong execution capabilities. His analysis aligns with previous expert views, where market expert Seshadri Sen from Emkay Global Financial noted that valuations are beginning to look attractive, with most companies trading at implied growth multiples which are now turning zero to slightly negative and very high free cash flow yields.
On positioning, Fersht's strategy reflects the evolving AI landscape. As reported by CNBC TV18, he highlighted a preference for companies that can deliver measurable business outcomes rather than traditional headcount-based models. He remains constructive on select segments, noting small and midcap financials which have seen wave of FDIs coming in… the valuations are on the right side. On earnings trajectory, he pointed out that improving breadth in corporate growth: "The share of companies which are delivering 25% plus growth goes up from 31% in FY26 to 41% in FY27". Regarding foreign flows, he noted that I am not sure that flows will come back in a rush at this point in time… But at least the selling will stop.
