Most market participants overlook the current structural shift taking place in India’s digital economy when they refer to India as a ‘reverse-AI’ trade, said Prateek Indwar, managing director and head, capital markets, Incred Capital. He believes that India is moving away from consuming global intelligence to building domestic infrastructure to process its own data in an email interview with Ananya Chaudhuri. Here’s the edited excerpt:

Markets view India as a reverse-AI bet, even as India is accelerating AI-centric partnerships and projects. Do you think that India will gradually evolve into an AI-play? 

The “Reverse-AI” narrative overlooks the structural transformation currently taking place within the Indian digital economy. India is rapidly evolving into a core AI-play by moving from consuming global intelligence to building the domestic “refineries” required to process its own data. By integrating proprietary orchestration platforms with large-scale infrastructure execution, the industry is moving beyond hardware rental to owning the sophisticated software layers required for enterprise AI. This shift, supported by sovereign mandates, ensures that high-performance computing remains at the centre stage in India. 

There is an imbalance between the data India generates and its computing power. Does this present an investment opportunity in India?  

The gap between generating a significant portion of global data and possessing minimal global compute is a major structural arbitrage and opportunity. This imbalance creates a requirement for domestic infrastructure to ensure data is processed locally rather than exported for refining abroad. For investors, this represents a transition from a service-led economy to an infrastructure-led one, where the priority is building localised high-performance computing clusters to turn raw data into actionable intelligence. 

Street has written off traditional IT companies due to a lack of AI, but the companies are still partnering with global AI players to evolve. Do you think this, along with their cooled-off valuations, makes them worth investing? 

The market can sometimes overreact to disruptive threat perception, but long-term investment merit depends on a fundamental shift in business models rather than just attractive valuations. Success will be determined by whether these firms can move beyond labor arbitrage toward high-margin, platform-led services. While strategic global partnerships are a starting point, the long-term winners will be those who control their own specialised software and infrastructure stacks rather than simply reselling foreign technology.

How is AI impacting IT companies’ revenue growth? Is Street overestimating its impact? 

 In the near term, technology-driven automation creates a risk of cannibalising legacy maintenance revenue, but it serves as a force multiplier for high-value consulting and workload intelligence. While the market may overestimate immediate revenue gains, it often underestimates the potential operating leverage as revenue growth decouples from headcount. Investors should favor firms demonstrating strong operational leverage and high utilisation of advanced computing resources.

Are there any AI plays in the SMID space? 

The Small and Mid-Cap (SMID) segment is currently a hub for specialised innovation because these firms are agile enough to build around an AI-native stack from the ground up. In this space, investors are prioritising “stack owners”—companies that develop their own proprietary orchestration and deployment platforms—over traditional service providers. These agile players are better positioned to capture niche markets and scale efficiently by focusing on specialised high-performance computing and GPU cloud infrastructure.

What are the key risks to the emerging AI story in India? 

The primary risks involve high capital intensity and global supply chain dependencies for critical hardware. AI infrastructure requires continuous, heavy reinvestment in rapidly evolving computing capacity, which puts pressure on long-term cash flows. Additionally, the success of the sector is tied to consistent policy frameworks and the timely execution of large-scale infrastructure projects. Mitigating these risks requires deep integration between infrastructure providers and specialised software platforms to ensure predictable performance and efficient capital use.