IT stocks oversold, capital markets remain a structural story: Nitin Raheja

India’s technology sector has been caught in a global wave of fear around artificial intelligence, but Nitin Raheja, Executive Director and Head of Discretionary Equities at Julius Baer Wealth Advisors, believes the market has swung too far. In a candid conversation with ET Now, Raheja argued that the pendulum of sentiment has moved decisively to the pessimistic end — and that the underlying fundamentals of India’s largest IT companies remain far more resilient than current valuations suggest.

Key takeaways

• IT sector selloff appears overdone in the short term; AI disruption will unfold gradually, not overnight
• Large IT firms sitting on strong cash flows may pivot toward AI acquisitions and data centre investments
• India’s household equity allocation stands at just 6–7%, leaving massive structural room for capital market growth
• Asset managers and wealth managers are the preferred plays in the capital market space
• GLP-1 patent expiry could catalyse a pharma re-rating in FY27, if valuations are supportive

The IT selloff: Fear has outrun reality

“There is just too much fear and apprehension around what AI is going to do to IT,” Raheja said. “Some part of it is real, surely, but a lot of it is really going to be happening over a period of time — not tomorrow or the day after.” His view is that the market has punished the sector as though AI-driven displacement is imminent, when in reality the structural transition will take years to fully materialise.

In the meantime, India’s top IT companies continue to generate strong free cash flows and trade at attractive dividend and cash flow yields. The more pertinent question, Raheja argued, is whether these firms will continue to return capital to shareholders through buybacks and dividends — or whether they will deploy cash more aggressively into AI capabilities. Early signs suggest the latter is increasingly likely.

Raheja pointed to the fact that India’s largest IT firm has already announced plans to set up data centres, signalling a meaningful strategic pivot. He expects more companies to follow suit, using their cash war chests to make acquisitions in the AI space — a move that could reframe the sector’s narrative from “at risk from AI” to “active participant in AI.” The global selloff in software and IT names, he added, has simultaneously created acquisition targets at reasonable prices.

His conclusion on the near term: the sector has sold off significantly enough to warrant a tactical bounce. Over the longer term, however, he acknowledged that growth rates will remain under scrutiny unless these companies successfully evolve their business models.

Capital markets: Short-term noise, long-term conviction

On the capital markets space, Raheja was unambiguous about the long-term structural case, even as he acknowledged the near-term headwinds from regulatory action. The government’s stated discomfort with the speculative exuberance in the futures and options segment has translated into a series of tightening measures — curbs on lending, restrictions on margin funding, and enhanced surveillance. Volumes in certain segments of the market are already moderating.”You will see things settle down,” Raheja acknowledged. But he was quick to put the structural picture in context: India’s households currently allocate only 6 to 7 percent of their assets to equities — a strikingly low figure compared with emerging market peers such as China, South Korea, and Taiwan. The gap alone represents years of potential inflows as financial awareness grows and equity culture deepens.

Equally important, in his view, is the psychological shift that has occurred among Indian retail investors following the post-COVID equity boom. Having witnessed the compounding power of equities firsthand, a generation of new investors is unlikely to exit the asset class simply because F&O speculation gets reined in. The equity habit, he suggested, has been formed.

“We are very, very optimistic on the capital market space. We believe it is a structural story — and that structural story will continue,” says Raheja.

Where to invest: Asset managers over exchanges, for now

When pressed on how investors should position within the capital markets theme, Raheja offered a nuanced take. His preferred play is on asset managers and wealth managers — businesses that benefit from the secular growth in financial assets under management, regardless of near-term volatility in trading volumes.

On stock exchanges, he was more measured. While acknowledging that exchanges function as natural monopolies within their respective segments — one dominant in equities and equity derivatives, another in currency and commodities — he flagged that an overhang exists. The impending IPO of India’s largest exchange is expected to reduce the scarcity premium that existing exchange stocks have historically commanded. Once that event passes and valuations recalibrate, exchanges become a more compelling entry point, he said.

Pharma and the GLP-1 opportunity

On the pharmaceutical sector, Raheja expressed cautious optimism around the GLP-1 theme — the class of weight-loss and diabetes drugs whose patent expiries are expected to open significant generic manufacturing opportunities in FY27. The sector has underperformed over the past year, which means valuations in some names have become more reasonable. If the GLP-1 play unfolds as anticipated and Indian manufacturers are positioned to capitalise, companies in this space could generate strong cash flows and command a re-rating. His caveat, characteristically disciplined: the opportunity is only worth pursuing if the valuations “stack up well.”
Across all three themes — IT, capital markets, and pharma — Raheja’s outlook reflects a blend of short-term tactical awareness and long-term structural conviction. Markets, in his reading, have mispriced fear in IT and underestimated the depth of India’s equity growth story. For patient investors, both could present meaningful opportunities.

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