State-owned Life Insurance Corporation of India (LIC) amassed more than Rs 21,000 crore in mark-to-market gains in just 35 days from three software exporters, delivering a rapid payoff on a contrarian wager made while artificial intelligence disruption fears were clouding the outlook for India’s technology industry.The market value of LIC’s holdings in Tata Consultancy Services (TCS), Infosys and HCL Technologies climbed to Rs 1.26 lakh crore on Aug. 4 from Rs 1.05 lakh crore at the end of June. That translated into a combined paper gain of Rs 21,032 crore.ETMarkets.comTCS generated the biggest increase, with the value of LIC’s holding rising by Rs 8,306 crore to Rs 48,926 crore. The value of its Infosys investment jumped Rs 7,213 crore to Rs 51,117 crore, while its HCL Tech holding added Rs 5,513 crore to reach Rs 26,306 crore.The gains followed LIC’s decision to accumulate shares of all three companies during the June quarter. India’s largest domestic institutional investor bought 59.93 lakh Infosys shares, 46.93 lakh HCL Tech shares and 1.45 lakh TCS shares.Infosys and TCS are also among LIC’s 10 largest listed equity investments by market value, making the rebound particularly consequential for its portfolio.Also Read |Hated till June, hottest in July! What’s driving the Rs 3.8 lakh crore boom in IT stocks?The insurer’s buying came as investors were debating whether generative AI could undermine the labour intensive delivery model that has powered India’s software services exports. Since the end of June, the Nifty IT Index has rallied about 19%, sharply reversing the sector’s earlier pessimism.“We see the IT rally as primarily valuation driven,” said Seshadri Sen, head of research and strategist at Emkay Global Financial Services. “The pessimism around AI gutting the traditional IT services has become excessive, and that narrative is now unwinding.”Short covering has contributed to the advance but is not its only driver, according to Sen. He sees the sector undergoing a rerating after valuations were beaten down excessively, with that process potentially only midway through.Also Read |Inside LIC’s Rs 16 lakh crore portfolio: Its biggest stock buys and sells in June quarterStill, the rally has moved ahead of earnings.“This is a sentiment and valuation recovery, not yet an earnings story—a genuine earnings recovery is still about 3-4 quarters away,” Sen said.LIC’s portfolio activity also shows that it was making selective stock calls rather than indiscriminately buying the technology sector. Beyond the three large companies, it purchased 7.60 lakh shares of Persistent Systems and 1.80 lakh shares of Coforge.At the same time, LIC sold 1.40 crore Wipro shares, 31.54 lakh shares of Tech Mahindra and 2.35 lakh shares of Oracle Financial Services Software.The insurer made no change to its share count in Cyient., KPIT Technologies, L&T Technology Services, LTM, Mphasis, Tata Elxsi and Tata Technologies.That positioning suggests LIC favoured selected large technology exporters and companies where valuations offered a more attractive risk-reward equation, while reducing exposure elsewhere in the industry.The longer term debate remains unresolved.“The key question is how the industry’s structure evolves three to five years from now,” said Kunal Vora, head of India equity research at BNP Paribas. “Artificial intelligence has created uncertainty around business models.”Recruitment has slowed across the industry, potentially reflecting both post-pandemic overhiring and expectations that AI will reduce the number or alter the type of employees required. That weakness has implications extending beyond technology into consumption.AI adoption, however, could also generate new revenue opportunities. Large companies will require IT service providers to integrate AI into existing systems, redesign workflows and manage applications, Vora said.“The market may be pricing in a structural decline that proves too pessimistic,” he said. Depressed valuations amid high pessimism could create upside if those concerns begin to ease.Anand Rathi has also identified early signs that the technology cycle may be shifting, despite a muted first quarter for Indian IT companies. “AI monetization is visible now,” the brokerage said.While the sector has faced AI-led deflation and geopolitical pressures, the brokerage sees continued opportunities in AI deployment and integration, legacy modernisation, data optimisation and preparing enterprises for AI adoption. It expects enterprise software companies to monetise those opportunities first during FY27, followed by IT services as deployment scales in FY28.For now, LIC’s Rs 21,032-crore mark-to-market gain offers an early indication that the market is reconsidering its most severe assumptions about AI’s impact on Indian technology companies. But with a broad earnings recovery potentially still several quarters away, the insurer’s windfall remains a valuation-driven payoff rather than confirmation that the industry’s fundamental challenges have passed.(Data: Ritesh Presswala)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)