Nifty IT Rebounds In October After A 36% Fall From Record. But Has The Rally Gone Too Far Already?

Indian IT stocks have staged a sharp recovery from their September lows, with Wipro leading the gains at 27%, followed by TCS at 22%.

The Nifty IT index had dropped 36% from its all-time high in July 2026. After slumping 11% in September, the index rallied 17% in October, signalling a sharp recovery in the sector.

However, the rally has pushed valuations higher, leaving limited upside across most large-cap IT stocks.

Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay

Among the five major IT companies, only Infosys has positive potential returns at current levels, at 3.5%. Wipro has the highest indicated downside of 11.5%, followed by HCLTech at 9%, TCS at 3.7% and Tech Mahindra at 1.5%.

READ | RIL, HDFC Bank, Axis To Max Healthcare: Jefferies Picks 12 Stocks For FPI Comeback

The recovery has been supported by largely in-line Q2 results, improving management commentary, higher AI revenue contributions and a positive hiring trend, particularly in specialised skills. However, companies have yet to see a meaningful recovery in discretionary spending.

IT Stocks: How Much Have They Recovered?

Wipro has gained 27% from its September lows, while TCS has advanced 22%. Tech Mahindra is up 20%, while Infosys and HCLTech have gained 16% each, according to data compiled by NDTV Profit.

The rally has also led to a re-rating in valuations. TCS now trades at 16 times earnings, compared with 14 times in September. Infosys trades at 15 times against 13 times earlier, while HCLTech's multiple has risen to 20 times from 18 times.

Tech Mahindra's price-to-earnings multiple has expanded to 31 times from 27 times, while Wipro trades at 15 times against 12 times in September.

What Are Brokerages Saying?

Citi has maintained ‘Sell' ratings on TCS, Wipro, HCLTech and Tech Mahindra, despite raising their target prices following the IT sector re-rating.

For Wipro, Citi raised its target price to Rs 170 from Rs 145 and increased its target P/E multiple to 13 times from 11 times. However, it expects annual EPS growth of around 2% through FY29.

For HCLTech, Citi raised its target price to Rs 1,200 from Rs 1,050, while retaining a ‘Sell' rating. It expects EPS growth to slow to 2% in FY28 and 1% in FY29.

Citi also raised its target prices for TCS and Tech Mahindra to Rs 2,000 and Rs 1,525, respectively, while maintaining ‘Sell' ratings. It expects TCS to deliver EPS growth of 2-3% annually in FY28-29, while Tech Mahindra's EPS growth is projected to moderate to 5.1% in FY29.

For Infosys, Citi maintained a ‘Neutral' rating and a target price of Rs 1,105, with its target P/E multiple unchanged at 14 times.

Q2 Results: AI Momentum Improves, Demand Recovery Remains Elusive

Q2 results across the sector were largely in line with expectations, with Tech Mahindra and HCLTech reporting sequential revenue growth of 3% each. Infosys grew revenue 2.1%, while TCS and Wipro reported growth of 1.3% and 1.1%, respectively.

AI revenue is emerging as a larger contributor. TCS said annualised AI revenue crossed $3.1 billion, accounting for more than 10% of revenue, while HCLTech reported advanced AI revenue of $219 million, up 28.4% sequentially in constant-currency terms.

However, Infosys cut its FY27 constant-currency revenue growth guidance to 1-2% from 1.5-3% earlier, while Wipro guided for a 1.5% decline to 0.5% growth in IT services revenue for Q3.

The recovery in IT stocks is therefore running ahead of a meaningful improvement in demand, with valuations and earnings growth remaining major factors for the next leg of the rally.

READ | MSCI November Rejig: Coforge, LIC, Adani Green Among Likely Additions; Meesho Also In Focus

Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.