Calls to slow the pace of artificial intelligence development may offer a reprieve for India’s beaten-down technology services stocks, among the earliest casualties of the AI boom.

A stock index comprising Tata Consultancy Services Ltd. and Infosys Ltd. has lost about $226 billion from its peak in December 2024 as AI developers including OpenAI and Anthropic PBC released AI models capable of eating into the traditional software and outsourcing businesses.

But the call for restraint on future AI development by Anthropic Chief Executive Officer Dario Amodei, also endorsed by OpenAI CEO Sam Altman and SpaceXAI CEO Elon Musk, may now prompt short-covering in Indian tech stocks as investors bet that disruption will take longer to play out. US tech stocks, including Nvidia Corp., slumped on Monday over concern about a potential deceleration in spending.

Investors will get a chance to react to the impact of the AI debate on Indian tech stocks when markets reopen today after a local holiday on Monday.

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“Any narrative around regulatory restrictions on the use of AI may actually have a positive influence” on Indian IT stocks, said Deven Choksey, managing director at investment advisory firm DRChoksey FinServ. “When the narrative shifts from unchecked development to regulated and responsible use of AI, short-covering backed by fresh buying in frontline IT stocks is quite possible.”

Valuations offer another reason for investors to take a second look. The NSE Nifty IT Index remains 37% below its record high and is trading at about 16 times its forward earnings estimate, which is two standard deviations below its five-year average, according to data compiled by Bloomberg. That makes the sector more sensitive to any improvement in sentiment.

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“AI slowdown chatter coupled with other macro factors, particularly a steeper yield curve and a stabilizing US dollar, can drive a short-term rebound in India IT services stocks,” said Gary Tan, a portfolio manager at Allspring Global Investments. “These factors favor cash-generative companies trading at relatively undemanding valuations, characteristics shared by many large-cap Indian IT services names.”