There will be winners and losers but IT industry, just like in the past transitions, will come out stronger: Standard Chartered Securities' Gaurav Dua

Talking about the overall market, Standard Chartered Securities, he explained is advising investors to a more balanced approach, combining both top down and bottom up stock selection as a strategy.

• Standard Chartered advises patience amid AI-driven IT stock changes
• IT sector in familiar transition; avoid panic selling
• AI expected to boost tech spending, but some firms may lag behind

Did our AI summary help?

As IT stocks reel under pressure from concerns on AI, Standard Chartered Securities is maintaining that investors should stay patient, arguing that the sector is going through a familiar transition phase.

"What we are advising to our clients right now is, if you are holding IT, don't try to exit. You will get exit opportunities," CIO Gaurav Dua noted at a Market Outlook event in Mumbai on Thursday. His core argument being that the IT industry has repeatedly reinvented itself and survived through multiple structural disruptions.

“We have had a neutral view on IT. So, we were never overweight,” Dua explained. With IT stocks witnessing sharp corrections and volatility, Dua explained that portfolio actions would be calibrated rather than reactionary. “Whenever that opportunity arises, and the kind of stocks that we would not like investors to hold on to, we are going to advise them to exit a bit, lighten their exposure there,” he said. “At the same time, there are stocks that we like in this space and we ask them to basically increase exposure,” he added.

In a transformational stage

“The industry has transformed itself number of times starting with post the Y2K bust and the dot com bust,” Dua said.

He explained that after the early-2000s downturn, companies shifted from an ADM-driven model to enterprise software package implementation, which grew to 35–40 percent of industry topline between 2002 and 2008.

When implementation became commoditised, firms pivoted again to quality assurance and infrastructure management, then to cloud computing and mobility, and eventually to large-scale digital transformation mandates.

However, not every player has navigated the shifts successfully. “In each of the transition… a lot of players were not able to do it,” Dua noted, pointing out that several firms were either consolidated or left behind over time.

Artificial intelligence, he said, marks the next major change.

“AI will take over some of the mundane, low-end work. No doubt about it,” Dua said. At the same time, he believes AI will accelerate enterprise tech spending. “The advent of AI will also prompt a lot of global companies to fast-track their digital transformation journey,” he said. “No more they can take their time. They'll have to do away with their legacy systems and build on the new technologies or the applications that are available," he said.

While large-scale models are general in nature, he added, “What is being built on that is a process for a business-specific AI application, which are the agentic, basically AIs, which are for a special purpose. And building them and integrating it with a business is where the software services job will come.”

Dua acknowledged that the current phase may not be smooth. “This transition phase, like the past transition phase, could result in near-term or some transition pain for the industry,” he said.

But added that the industry, just like the past transitions, will come out stronger. “There are going to be some winners and some losers," he added.

Investment strategy

Talking about the overall market, Standard Chartered Securities, he explained is advising investors to a more balanced approach, combining both top down and bottom up stock selection as a strategy.

“Whenever we advise our investors, we look at a balanced approach,” he said, recommending “a good mix of large, mid and small caps.”

He explained that allocations are largely driven by a top-down strategy — identifying “at what stage of economic up cycle, down cycle you are” and which sectors are on a structural uptrend or facing difficulties. “Once you have that in place, I think 70–80 percent of the work is done in terms of building your direct equity portfolio,” Dua said.

A smaller portion, he added, is allocated to the more aggressive side of the market. “On the other hand, there is part of the exposure which is towards the aggressive part of the market, the broader market and small caps, where it is more about the bottom-up approach or the stock picking.”