- Infosys shares rose 3% after Jefferies added it to its India model portfolio
- Jefferies shifted IT sector stance from underweight to neutral citing easing AI concerns
- The change followed meetings with 50+ FPIs signaling a shift in India AI trade sentiment
Shares of Infosys rallied 3% in Monday morning trade after Jefferies added the stock to its India model portfolio and shifted its stance on the IT services sector from underweight to neutral, citing easing concerns around the artificial intelligence trade that has weighed on the sector for much of the year.
The brokerage's shift follows meetings with more than 50 foreign portfolio investors over the past two weeks, which it said pointed to a broader change in sentiment toward India as the AI trade comes under scrutiny. Explaining the move, Jefferies said in its note, "As the AI trade pauses, we tactically close out our longstanding IT services UWT."
The reversal was triggered by a roughly 30% drop in MSCI Korea on weak memory stock performance, which has raised questions about the sustainability of heavy AI capital expenditure by US hyperscalers. Token prices have fallen around 25% from their peak, and hyperscaler bond spreads have widened on growing credit concerns, prompting several FPIs to reverse or re-evaluate longstanding India underweight positions built up around the AI trade.
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Jefferies raised its weight in Coforge alongside the Infosys addition, funding both moves by trimming exposure to power, real estate and hospitals — sectors it continues to hold as large overweights in its model portfolio. Infosys retains a Hold rating from the brokerage, with the change reflecting a shift in sector-level positioning within the model portfolio rather than a stock rating upgrade.
Infosys share price has rallied 3% on Monday
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The Nifty IT index is down 38% from its December 2024 peak, with the sector's top four majors — TCS, Infosys, HCL Technologies and Wipro — down 35-50% from their two-year highs. Nifty IT now trades at 16x, a standard deviation below 10-year average, against a long-term average of 21.3 times.
Jefferies said revenue growth for IT stocks is likely to stay in the low-to-mid single digits through FY26-28, but a reversal of the AI trade could drive a tactical rebound after the sector's sharp decline. It noted that negative stock reactions to negative sector-specific news have turned milder recently, a sign of a possible tactical bottom.
FPI flows into Indian equities have turned positive over the past five weeks at a net $3 billion, reversing four months of outflows worth $29 billion.
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