The deepening rift between Silicon Valley and Dalal Street

Subscribe to enjoy similar stories. The artificial intelligence boom has propelled US technology stocks to historic highs, while India’s IT services sector is struggling to keep pace, slipping into one of its weakest relative phases since 2023. On a rolling three-year basis, the Nifty IT index is now underperforming its US technology peers in the Nasdaq by over 40%.

The US tech-heavy index has outperformed India’s Nifty IT since mid-2023—when the AI frenzy began—according to an analysis by DSP Asset Managers. Indian IT has seen periods of relative weakness against global peers before, but analysts say what sets the current cycle apart is that the gap is being driven less by currency movements or outsourcing demand, and more by who controls the AI value chain. During the late-1990s tech boom, Indian IT strongly outperformed, with a relative rolling three-year gain peaking near 194% in 2000.

This was followed by a sharp reversal after the dot-com crash, with underperformance widening to around 48% by 2002. Again a mid-2000s recovery faded during the global financial crisis, pushing the underperformance gap back to roughly 34%. The pattern repeated in the next decade.

After a brief outperformance of nearly 50% in the early 2010s, Indian IT slipped again by 2012–13, lagging the Nasdaq by about 49%. Underperformance remained elevated between 2015 and 2018, narrowed briefly during the pandemic, and has widened once more since mid-2023, with the rolling three-year gap returning to around 48%. Market participants increasingly see the gap as rooted in a fundamental shift rather than a simple valuation mismatch.