'AI Is Both Opportunity And...': What To Expect From IT Sector In Q2? Kotak Picks Top Winners, Losers
Koyak's Saluja offered his top picks for Q2 earnings season. He expects Infosys and Tech Mahindra to deliver strong performances while TCS and Wipro are likely to come out with weak earnings.
Artificial intelligence could be the biggest opportunity for Indian IT companies, but it is also the biggest risk, according to Kawaljeet Saluja, Senior Executive Director & Head of Research, Kotak Institutional Equities, who cautioned that the industry is entering a three-year 'AI-led deflationary transition', which may have some impact on growth.
“Our view is that there is a transition phase of three years starting FY26, in which the industry growth rate will be impacted by around 2.5% because of AI adoption,” Saluja told NDTV Profit ahead of Q2 earnings season.
Saluja explained that while large companies may face the brunt of the AI deflation phenomenon, smaller companies or 'challengers' as he calls it, could leverage AI to break into large companies by scaling up.
"The impact will be felt more by the incumbents rather than the challenger. Challengers can USE AI as an opportunity to break into the stronghold of large companies and establish scale. AI will be an area of focus in the September quarter. There will be an impact, but growth will continue for the sector,” he said.
What To Expect From IT In Q2?
After an elongated period of weakness, Saluja believes all IT companies are expected to post positive sequential growth in the September quarter, adding that the intra-quarter deterioration from earlier quarters has dissipated. He also believes demand in stabilising.
"All companies are to report positive sequential growth. The intra-quarter deterioration, which was there in June and March quarters, has stopped. Demand in a way is stabilising," he said.
Saluja added by pointing out Gen AI deflation as a key factor in FY26, but said that the outlook for FY27 will be important.
"It is a reality that growth rate for the industry is well below the normalised trend rate and FY26 is going to be impacted at a yearly level because of tariff wars as well as Gen AI deflation," he said.
"What happens in FY27 will be important and the growth acceleration during the period, although I don’t expect the companies to talk about it," he added.
Finally, Saluja offered his top picks for the upcoming earnings season. He expects Infosys and Tech Mahindra to deliver strong performances in Q2 while TCS and Wipro are likely to come out with weak earnings.
