As Indian markets search for direction, veteran market expert Ajay Bagga has laid out a clear-eyed sector strategy: stay patient on IT until real AI revenue materialises, stay invested in pharma for its multi-factor strengths, and think in decades, not quarters, on defence.
IT: Bottom fishing, not a fundamental shift
The two-day recovery in Indian IT stocks does not impress Bagga. He characterised it as bottom fishing driven by compressed valuations rather than any genuine earnings breakthrough. The core problem, in his view, is that Indian IT services companies have spent two years building AI capability — retraining staff, developing case studies, preparing pitches — but the actual client orders have not followed at scale.
"Are they going to be victims of AI or are they going to ride AI? That is the big question. We do not have enough answers, enough data right now," says Bagga.
He contrasted this with large US cloud providers, whose AI-driven revenue growth is already visible in reported numbers. For Indian IT, he expects the next two quarters to be decisive. A rerating, he said, will only come when AI end-use implementation shows up in actual order flows and revenue guidance, not in management commentary alone.
Within the IT basket, Bagga flagged niche pockets as more interesting: companies supplying into semiconductor hardware, data centre infrastructure, and power supply for AI compute. He noted that most pure-play opportunities require investing through listed proxies rather than direct exposure.
Pharma: Evergreen, and then some
Bagga remained firmly constructive on pharma, calling it a sector that ticks multiple boxes simultaneously. It benefits from India's structural cost advantage, making it globally competitive. It is export-oriented, which means a weaker rupee acts as a tailwind rather than a headwind. It holds up defensively in periods of geopolitical stress. And unlike many defensive sectors, it is still a growth business in India rather than merely a capital-preservation trade. He acknowledged the sector has five to six distinct sub-segments and advised investors to remain selective rather than buying the theme indiscriminately.
Defence: Shipbuilders and drone suppliers lead the queue
On defence, Bagga pointed to the Shangri-La Dialogue as fresh evidence of growing international demand for Indian military exports — citing Brahmos missile interest from Vietnam, the Philippines, and Indonesia. He described the world as being in a decade-long remilitarisation cycle, with India well-positioned for both export growth and domestic import substitution.
Among sub-segments, he ranked shipbuilders highest, citing order book visibility that is growing by an order of magnitude. Missile and munitions makers followed. He also highlighted drone manufacturers and their component suppliers, noting revenues are growing near-vertically, a shift accelerated by lessons from the Ukraine and Middle East conflicts. He cautioned, however, that defence valuations are not cheap and warrant close scrutiny before committing capital.
