NewsStocksIT and Fintech Sectors Poised for Recovery as Market Leadership Expands, Says Rajat SharmaIT and Fintech Sectors Poised for Recovery as Market Leadership Expands, Says Rajat Sharma
Rajat Sharma of Sana Securities expects IT and fintech sectors to stage a comeback as market leadership expands beyond metals, auto, and PSU banks. IT stocks trade near historical lows despite strong fundamentals, with major players deriving 63-80% revenues from US markets. Sharma prefers Infosys among large caps for its 2.20%+ dividend yield and recommends midcap Intellect Design Arena for next-generation banking solutions. He also sees opportunities in fintech platforms like Paytm, which has diversified revenue through third-party product sales and expanded distribution networks.
*this image is generated using AI for illustrative purposes only.
Market expert Rajat Sharma, Founder & CEO of Sana Securities, anticipates a significant shift in sectoral leadership as India heads toward 2026. After an extended period of narrow market movement where metals, auto stocks, PSU banks, and financial services dominated returns, investor attention is gradually rotating toward previously underperforming segments, particularly information technology and platform-driven businesses.
IT Sector Fundamentals Remain Strong Despite Sentiment Challenges
Sharma has recently increased exposure to the IT sector, attributing its weak performance primarily to sentiment-driven concerns rather than fundamental issues. The negative narrative stems from US-related developments, including tariff discussions and repeated mentions of higher H-1B visa fees, which do not directly impact the services business model.
The sector's fundamentals present a compelling case for recovery:
| Key Factor | Details |
|---|---|
| US Revenue Exposure | 63% to over 80% for major players |
| Currency Denomination | Largely US dollar-denominated globally |
| Current Valuations | Near historical lows |
| Dividend Yield (Infosys) | Above 2.20% |
Large IT companies such as Infosys and TCS derive substantial portions of their revenues from the US market. Additionally, revenues from other geographies remain largely US dollar-denominated, making currency movements crucial for earnings performance. A strengthening dollar historically provides favorable conditions for Indian IT companies, given their US currency earnings exposure.
Strategic Investment Approach Across Market Caps
Sharma advocates for a balanced investment strategy within the IT sector, spanning both large-cap and select small-cap stocks. Among large-cap options, Infosys emerges as a preferred pick, currently trading at levels where its dividend yield exceeds 2.20%, providing downside protection. The company's robust cash position offers flexibility for acquisitions and investments as it adapts to artificial intelligence-driven changes in technology spending.
According to Sharma's analysis, even a partial re-rating to historical multiples could generate approximately 20.00% upside from current levels. This potential return, combined with the defensive dividend yield, creates an attractive risk-reward proposition.
Midcap Opportunities in Next-Generation Solutions
Beyond established players, Sharma focuses on midcap IT companies developing next-generation products. Intellect Design Arena stands out for its efforts to redefine core banking technology ecosystems. Traditional platforms like Finacle operate on older architectures that complicate integration with modern artificial intelligence tools.
Intellect's eMACH product aims to create a modern, AI-ready core banking system capable of:
- Capturing customer data more efficiently
- Enabling deeper analytical insights for banks
- Supporting seamless AI tool integration
Despite trading at multiples of 45-50, Sharma considers these valuations reasonable for a technology company with strong growth potential, particularly given recent global order wins including deals with overseas banks.
Fintech Platform Evolution and Distribution Strength
Sharma maintains optimism about select fintech and platform companies, especially those with strong distribution networks. Paytm exemplifies this evolution, having re-integrated its payments ecosystem through multiple banking APIs. The company's revenue profile has shifted significantly, with growing contributions from third-party product sales, including credit cards and loan disbursements.
| Business Transformation Aspect | Current Status |
|---|---|
| Payment Integration | Multiple banking APIs |
| Revenue Diversification | Growing third-party product sales |
| Distribution Network | Expanding scale |
| Sequential Revenue Growth | Expected continuation |
Sharma believes future financial services leadership will belong to players with extensive distribution networks, regardless of their classification as banks, NBFCs, or fintechs. This perspective supports his positive outlook on Paytm's prospects, particularly for investors with higher risk tolerance.
Market Leadership Expansion Outlook
The broader market context suggests conditions are aligning for sectoral rotation. With IT stocks trading at subdued multiples, artificial intelligence driving new investment cycles, and fintech platforms gaining operational traction, previously lagging sectors may regain favor as 2026 approaches. Sharma expects market leadership to broaden as valuations stabilize and earnings visibility improves, creating opportunities across technology and platform-driven businesses that have underperformed in recent periods.
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