AI Shock: IT valuations fall near levels seen during subprime crisis

By

, ET BureauLast Updated: May 19, 2026, 05:40:00 AM IST

Synopsis

Indian IT exporters' valuations have plummeted to near 2008-09 subprime crisis levels, trading at 15-18 P/E multiples. This sharp decline, driven by AI advancements impacting headcount-based execution and OpenAI's direct entry into enterprise solutions, has seen stocks lose nearly 30% in 2026. While a weakening rupee offers short-term support, the AI overhang is expected to cap medium-term gains.

ET Intelligence Group: The latest selling spree in IT stocks has impacted valuations of top Indian software exporters, taking them near the levels seen during the subprime crisis in 2008-09. The stocks of Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro currently trade at trailing price-earnings (P/E) multiples between 15 and 18. They have halved from the peak valuations seen four years ago when Covid-related disruptions boosted demand for enterprise IT solutions. These stocks have lost nearly 30% so far in 2026 amid rising concerns over the impact of advancement in artificial intelligence (AI) technology on client servicing and deployment of IT solutions.

Improving AI capabilities in the field of coding, testing and debugging are expected to affect the revenue potential of Indian IT service providers, which have long relied on headcount based execution. In addition, the recent announcement by OpenAI to establish a subsidiary OpenAI Deployment Company to help enterprises to integrate AI solutions will facilitate its direct entry in the enterprise process management, which was long considered as a strong forte of Indian IT companies.

Agencies

Business Threat AI capabilities in coding, testing and debugging expected to hit Indian IT’s strong point; Any upside for stocks from a weakening rupee likely to be limited

While valuations of IT companies have come under pressure on a few occasions over the past 15 years, the current retreat is significantly steep. For instance, P/E of TCS, the country's largest IT exporter and Infosys, the second largest, fell below 20 during the Taper Tantrum phase in 2013 and later in 2017 when the US administration tightened H1B visa norms. Their current P/Es at 16.7 and 15.7 have, however, breached these levels and are now closing in with the lows seen during 2008-09 when P/Es had hovered between 12 and 15 before briefly diving to high single-digit levels.

IT stocks have experienced buoyancy over the past two trading sessions driven by optimism that weakening rupee would offer support to export realisations in the short term. However, the AI overhang is expected to remain in the medium term, thereby capping the upside for these stocks.

...moreless

...moreless