IT Large Caps See Valuations Slip To Five-Year Low: Right Time To Buy?

The valuations of large-cap Indian IT companies have dropped to their lowest in five years, led by a slowdown in their earnings growth, along with uncertainty in the market on back of delayed client decisions and lull in discretionary spends.

Also, a lack of investments in artificial intelligence, and the lack of actual revenue clocking from AI-based projects has led to uncertainty in the shift towards this rapidly emerging technology.

The Nifty IT Index valuation is at 25 times the price-to-earnings ratio, versus the average valuation of 29-30 times, whereas some tech companies have hit their lowest valuation in 10 years.

Current P/E Valuations For Top 5 IT Firms

As we see below, the valuations of three out of top five IT companies are below the five-year valuation mark, while rest are below the two-year mark.

This basically means that stocks are currently valued lower versus how they were valued five years ago. TCS is currently valued at 22.4x versus 31.8x in 2020.

Price Correction Year-To-Date

The IT sector has been correcting since a while now, and as of date, it has corrected between 11% and 26%. The combined market cap of Nifty IT is down 24% in 2025 to Rs 24.86 lakh crore, marking a major degrowth in the share performances.

Mutual Funds Most Underweight On IT Sector

Mutual funds across categories were at the lowest level of ownership of IT stocks in their schemes in the last their years. In 2022, the ownership stood at 9.75%, which fell to 7.76% as of July 2025. This shows how the industry is moving away from the IT space.

These MF schemes include large, mid, small, flexi and hybrid. However, we have avoided sector specific funds in our analysis.

Brokerages Turn Positive

Bank of America, in its recent report, moved IT to 'overweight' rating from underweight. Elara Securities believes the weakness in Indian rupee could benefit the IT sector, giving a positive bounce back.

In a recent interaction with NDTV Profit, Sushovon Nayak of Anand Rathi said he is "constructive on IT large caps on the back of valuations and AI".

When it comes to analyst recommendations, Infosys has the most 'buys' at 34, followed by TCS. When we look at the 'sell' rating, Wipro has the most of it, followed by HCLTech. The return potential ranges from 8% to 23%, with TCS and Infosys seen with the highest return potential.