- Nifty IT index gained 2.88%, led by Wipro, Infosys, HCLTech, Tech Mahindra, and TCS
- The rally coincided with a selloff in AI infrastructure stocks due to monetisation concerns
- Indian IT firms benefit from attractive valuations and steady cash flows amid AI uncertainty
Indian IT stocks outperformed on Wednesday, on a day when the broader market stayed weak, and benchmarks wiped out their early gains to settle in the red. This comes in the backdrop of the robust recovery logged by the information technology stocks last week, which made a section of analysts sound bullish on the sector that has been hammered for the most of this year.
The shine in IT stocks is being linked to the lull in AI trade, as concerns over monetisation and over-leveraged positions keep investors jittery about a potential dot-com-like crash. The movement in global markets over the past fortnight has given further credence to this inverse relationship, as IT stocks rose significantly while AI chip majors faced multiple crashes in western and Southeast Asian markets.
The Nifty IT index closed 906.20 points, or 2.88%, higher at 32,422.50 as trading resumed after the Dussehra holiday. Every heavyweight ended with gains of more than 2.5%. Wipro, which has given the weakest outlook among its large peers, led with a 3.86% rise to Rs 189.17. Infosys gained 3.30% to Rs 1,168, HCLTech 3.21% to Rs 1,424.20, Tech Mahindra 3.13% to Rs 1,834.70 and TCS 2.77% to Rs 2,529. L&T Technology Services jumped as much as 14.7% in morning trade after its September-quarter net profit rose 53.5% year-on-year to Rs 548 crore.
The tech rally was not enough to hold up the broader market. After opening higher, the Nifty 50 ended 77.60 points, or 0.34%, lower at 22,811.35, while the Sensex slipped 143.21 points, or 0.19%, to 73,709.69.
Wednesday's gains come on top of an extraordinary week. The Nifty IT index climbed 11.7% in the five sessions to Oct. 16, its best week in 18 years. Tech Mahindra led that run with an 18.2% gain, while TCS rose 14.3% and Infosys 13.5%.
Money Running From AI, Not Towards It
What draws attention towards this IT rally is the sumltaneous selloff in AI stocks. The same week Indian IT surged, investors dumped the companies building and financing AI infrastructure. CoreWeave plunged 15% and Oracle nearly 9% on Oct. 14 amid worries over how AI data centres are being funded, and South Korea's Kospi, heavy with chipmakers Samsung Electronics and SK Hynix, plunged 8% the next day.
Analysts say a slice of that money may have went looking for sectors that had already been punished. "It's too early to say, but the fact that Indian IT stocks have an attractive valuation after a rough patch, and this is a sector that proven its resilience through various disruptions, including the dot-com bubble, 2008 financial crisis, and the Covid-19 pandemic," Kranthi Bathini, equity director at WealthMills Securities, told NDTV Profit.
Narendra Solanki, head of fundamental research at Anand Rathi Share and Stock Brokers, told Business Standard last week that a rotation into Indian IT as an "anti-AI" trade was a primary reason behind the recent gains, as chip stocks slid on concerns over stretched valuations and heavy spending.
A section of analysts believe that concerns about returns on AI infrastructure spending had pushed investors out of AI hardware and into traditional IT services. These concerns amplified after OpenAI's annualised revenue for September came in about $50 billion, short of the roughly $70 billion investors had expected.
From Victim To Refuge
The turnaround is striking because AI was cast as the sector's biggest threat earlier this year. On Feb. 4, Indian IT stocks fell 6.3%, their worst day since March 2020, after Anthropic released plug-ins for its Claude Cowork agent that automate legal, sales, marketing and data work, Reuters reported. Infosys led the declines with a 7.3% drop that day.
The sell-off wiped out about $50 billion in market value from the sector during February. "There is more pain ahead for Indian IT," Jefferies said at the time, arguing that AI could erode application services revenue that has long been a profit engine for the industry.
The Case For The Hedge
Bulls argue that the fundamentals of Indian IT businesses look stronger as compared to the debut-funded AI build-out, which is increasingly coming under scrutiny now. Indian IT firms do not build chips or own data centres. They generate cash, pay dividends and increasingly sell AI implementation to their existing clients.
Analysts also point out that most large IT companies trade at 12 to 18 times earnings, with strong cash flows and dividend yields of 3% to 5%, which offers an attractive entry-point for long-term investors.
The latest quarterly numbers also gave traders something to hold on to. HCLTech raised the lower end of its FY27 revenue growth guidance to 2.5%, from 1%, while keeping the upper end at 4% in constant currency. Its advanced AI revenue grew 78% year-on-year to $219 million. TCS said its annualised AI revenue reached $3.1 billion, more than 10% of total revenue.
The companies have also moved closer to the AI labs. Infosys signed a collaboration with Anthropic and TCS partnered with OpenAI in February, while HCLTech announced a global alliance with Anthropic alongside its September-quarter results.
Even during February's rout, JPMorgan pushed back against the idea that AI would replace the industry, saying IT services companies "remain the plumbers in the tech world."
The Case For The Hostage
The bear case is that Indian IT's share prices are now being set by events in San Francisco and Seoul, while its own growth remains sluggish.
TCS's September-quarter revenue rose 11.2% in rupee terms but just 2.4% in dollar terms, a gap that shows how much a weaker rupee is flattering reported numbers. Wipro's IT services revenue grew only 0.6% year-on-year in constant currency, and it guided for anywhere between a 1.5% decline and 0.5% growth in the December quarter. Infosys cut its FY27 revenue growth guidance to 1.5% to 3% in July.
The recent gains also have a long way to go. The Nifty IT index is still about a quarter down from its February high, and index heavyweights such as TCS, Wipro and Infosys are down 21.6%, 29.2% and 28.3% in 2026 so far.
Arun Kailasan, research analyst at Geojit Investments, told Financial Express that while the latest numbers were encouraging, it was "too early to call this a sustainable turnaround." He said the rally had leaned heavily on external triggers such as easing bond yields and the rotation out of AI-linked stocks, which may not last.
A sustained turnaround for the IT sector, along with the broader markets, also requires the return of foreign institutional investors. While FIIs were net buyers of Indian equities worth Rs 1,022 crore on Wednesday, they have offloaded Indian equities worth Rs 49,870 crore in October so far.
The Next Test
The IT sector faces its next text on Friday, when Infosys—counted among the top three sectoral firms in India—will declare its September-quarter results. After cutting its outlook in July, any further trim to its FY27 guidance would revive the argument that AI-led pricing pressure on traditional services is structural, not cyclical.
For now, the market is treating Indian IT as a hedge against an AI bubble. But a sector that rallies when AI stocks fall can just as easily slip when they recover, which leaves it, for the moment, as much a hostage to the AI trade as a hedge against it.
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