Key Takeaways:
India's largest actively managed equity fund is buying beaten-down IT stocks, betting that investor fears over artificial intelligence's impact on the outsourcing industry have gone too far.
PPFAS Mutual Fund's $14.9 billion Flexi Cap Fund added exposure to Indian IT services companies over the three months through May, deploying cash that had been parked in debt and money-market instruments as valuations compressed sharply, Chief Investment Officer for Equities Rajeev Thakkar said in an interview.
"This whole pessimism that everything will be brought back in-house and no one will outsource any work, or these models will be so efficient that end-to-end everything will be done by the models and no humans will be required — I don't see that pessimism as being realistic," Thakkar said.
The NSE Nifty IT Index, which includes Tata Consultancy Services Ltd. and Infosys Ltd., has fallen about 28% this year, on pace for its worst annual performance since 2008. The gauge's forward price-to-earnings multiple has compressed to 15.7 times 2026 estimated earnings from 21.2 times a year ago. The selloff accelerated after Accenture Plc's dour forecast triggered a 3% sector decline on June 19 before stabilizing the following session.
Thakkar argues that while AI may automate some software-development tasks, IT services firms stand to benefit from productivity gains and cost savings, some of which they can retain. The fund has nearly 19% allocated to technology, with HCL Technologies Ltd. and Infosys Ltd. among its top 10 holdings, according to the latest factsheet. About half of that tech allocation is in Indian IT services, with the remainder in overseas names including Alphabet Inc. and Amazon.com Inc.
The fund reduced its allocation to debt and money-market instruments to 14.03% as of May from 23.77% in April 2025, when Thakkar had doubled cash holdings on valuation concerns. Core equity exposure rose to about 70% from 67.30% a year ago. Beyond IT, the fund added positions in financials, utilities and coal mining.
"Our mandate is to invest in equities," Thakkar said. "Whenever valuations don't look attractive enough to find opportunities, remaining money stays in debt and money-market instruments."
The deployment comes during a difficult period for Indian equities. Foreign investors have withdrawn nearly $30 billion from Indian stocks as of June 18, according to official data. Indian equities are on track to lag most Asian peers this year, in stark contrast to South Korea's Kospi Index, which has surged about 116% in 2026.
Despite its recent underperformance relative to most flexi-cap peers — the fund is down about 0.8% over the past year — PPFAS's flagship fund ranks second in its category over the past decade, with annualized returns of about 17.8%, according to the Association of Mutual Funds in India.
"Wherever we are seeing reasonable valuations and reasonably good prospects, we are investing in those spaces," Thakkar said. "We are sticking with cash-flow generating businesses, and businesses which have value here and now."
The fund's contrarian bet carries implications for India's $250 billion IT services industry, which employs more than 5 million people and generates roughly 8% of the country's gross domestic product. If Thakkar's thesis proves correct, the sector's valuation trough could mark an entry point for value-oriented investors. If AI disruption accelerates faster than anticipated, further downside remains possible — the Nifty IT index would need to fall another 12% from current levels to match its 2008 peak-to-trough decline of about 40%.
This article is for informational purposes only and does not constitute investment advice.
