BNP Paribas’ Kumar Rakesh Challenges the Perception of Largecap IT Stocks as a Value Play.

The latest guidance for FY27 from major IT firms has raised concerns among analysts, particularly BNP Paribas’ Kumar Rakesh, who cautions against branding large-cap IT stocks as “value plays.” The current outlook indicates that revenue growth is likely to stagnate at levels observed in FY26, which Rakesh deems disappointing. This downward revision can be attributed primarily to client-specific challenges influenced by geopolitical tensions in the Middle East, which have stalled the anticipated recovery in client spending that began earlier in the year.

Rakesh also points to a notable divergence in growth within the sector, exacerbated by the increasing influence of AI technology. While there are fears of pricing pressures affecting IT services, most companies reported no significant compression or delays in securing large contracts following the advent of advanced AI models. The pronounced effects on pricing are instead stemming from aggressive vendor consolidation strategies, rather than AI development itself. Despite the challenging landscape, Rakesh maintains a selective investment approach, focusing on companies less vulnerable to AI disruption but positioned to benefit from its adoption in the long run.

Looking ahead, Rakesh expresses cautious optimism that a de-escalation of Middle Eastern tensions could foster improved macro-economic conditions, subsequently enhancing growth prospects for IT services. However, he warns that any recovery will be gradual as the sector grapples with both AI’s deflationary impacts and the delayed emergence of demand for AI-related services. While buybacks and dividends may provide some downside protection for strong firms navigating these hurdles, Rakesh advises that labeling large-cap IT stocks as “value investments” remains risky in the face of persistent earnings volatility.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)