India's information technology sector has staged a recovery after a prolonged period of underperformance, prompting many investors to reconsider the space as valuations become more reasonable. Yet, not all market participants are convinced that the recent correction has created a compelling buying opportunity.

Investor Anish Tawakley has chosen to remain cautious despite acknowledging that the rebound in IT stocks has created a fear of missing out among investors. Having exited the sector near its highs, Tawakley believes the challenges facing listed IT services companies extend beyond the normal cyclical slowdown that investors have witnessed in previous years.

His concerns centre on what he views as a structural shift in the global technology outsourcing landscape. While India's broader technology ecosystem continues to expand and attract investments, he argues that the benefits are increasingly flowing to Global Capability Centres (GCCs) rather than traditional outsourcing vendors.

Over the past two decades, India's large IT services firms built their success on helping multinational corporations reduce costs by outsourcing technology and business process operations. During the early stages of India's outsourcing boom, many global companies were hesitant to establish their own operations in the country because of regulatory complexities, talent management challenges, and operational risks.

However, that equation appears to be changing. As multinational corporations have gained greater confidence in operating in India, many are increasingly setting up captive technology centres and back-office operations. These GCCs are now undertaking work that historically would have been outsourced to listed IT service providers.

This trend is becoming one of the most closely watched developments in the Indian technology sector. GCCs have expanded rapidly in recent years as companies seek greater control over critical technology functions, access to skilled talent, and direct ownership of intellectual property development.

According to Tawakley, this shift could alter the competitive dynamics that historically supported the strong revenue growth and high profitability of India's leading IT companies. If a larger share of technology spending remains within captive centres, outsourcing vendors may face increasing pressure on both growth rates and margins.

The discussion also extends to artificial intelligence, which many investors view as the next major growth catalyst for the sector. While AI has generated significant optimism across global technology markets, Tawakley remains unconvinced that productivity gains alone will automatically translate into stronger earnings growth for IT service providers.

His argument is based on the competitive nature of the outsourcing industry. If AI enables companies to complete projects with fewer employees, clients may ultimately benefit through lower pricing rather than vendors retaining the gains as higher margins. In such a scenario, productivity improvements could become a source of cost reduction rather than a driver of incremental revenue growth.

For AI to materially improve sector prospects, Tawakley believes it must generate entirely new streams of demand and expand the volume of technology work being executed. One of the clearest indicators of such demand, in his view, would be a sustained increase in hiring activity across major IT companies.

So far, that evidence remains limited. Hiring trends across the sector have been relatively subdued as companies continue to focus on utilisation improvement, automation, and productivity enhancement. The absence of aggressive recruitment suggests management teams remain cautious about future demand visibility.

From an Indian market perspective, these observations are particularly relevant because information technology remains one of the largest sectors within domestic equity benchmarks and a key contributor to export earnings. Any prolonged moderation in growth could influence earnings expectations, valuation multiples, and foreign investor sentiment toward the sector.