India Tech Valuations Put To The Test As Earnings Remain Under Pressure

Firms in the sector are focused on integrating generative AI into their operations and training employees to use the tool effectively.

India's IT services giants may struggle to justify their valuations when they kick off Asia's reporting season this week, as earnings are expected to be the weakest in years.

India's tech sector index, which includes Infosys Ltd. and Tata Consultancy Services Ltd., rallied 12% in the three months through December, powered by a global rally in the space after a dovish pivot by the Federal Reserve. India's tech stocks trade at about a 27% premium to the broader market. Improved sentiment aside, IT earnings remain under pressure.

"Although sentiment has improved, it has not yet been reflected in actions," said Mukul Garg and Pritesh Thakkar, analysts at Motilal Oswal Financial Services. Analysts at Nomura expect the ongoing slowdown to weigh on discretionary tech spending into the 2025 financial year.