Indian IT stocks have been on a tear lately, and the reason is pretty simple: the market is betting that AI won't destroy traditional IT services as quickly as feared. This has birthed what analysts are calling the "anti-AI" trade.
It's a rotation based on relative safety, not a sudden discovery of new growth engines.
The Nifty IT index has surged over 2,000 points in just two sessions, crossing the 30,000 mark for the first time in nearly a month. That's an 8.69% jump in a week. But here's the context: the index is still down about 25% year-to-date. This rally looks more like a relief bounce than the start of a new bull run.
He said enterprises are "wasting money" on AI tokens, comparing it to a child burning through arcade tokens with nothing to show for it. These remarks, made at a conference in Singapore, added fuel to the growing skepticism around AI valuations.
But did Tan's comments cause the IT rally? Not really. The rotation was already underway. His words were more of a sentiment catalyst than the primary driver. The real trigger was HCLTech's earnings, which showed that traditional IT services can still grow even in an AI-heavy world. Tan's comments just gave traders another reason to rotate out of expensive AI stocks into beaten-down IT services names.
The company reported a 21.2% year-on-year jump in net profit to ₹5,132 crore. Revenue grew 11.5% to ₹35,620 crore. But the numbers that really caught attention were the margin expansion and AI revenue growth. Investor Presentation
Operating margin hit 18.2%, up 131 basis points sequentially. Advanced AI revenue surged 78% year-on-year to $219 million. The company also raised the lower end of its FY27 revenue growth guidance to 2.5% from 1%, while keeping the upper end at 4%. This wasn't just about beating expectations; it was about showing that AI can be an opportunity, not just a threat. Investor Presentation
The stock jumped nearly 11% in two days. But here's the thing: TCS and Infosys also rallied 6-10% during the same period. This suggests the move was sector-wide, driven by sentiment, rather than purely company-specific.
TCS and Infosys have their own stories.
Management says AI work comes in at much higher margins than the company average. But traditional non-AI revenue is declining, which is a concern. Transcript +1
Infosys is in a tougher spot. It cut its FY27 revenue guidance to 1.5-3% and confirmed additional AI-led deflation on renewals. The company is seeing softer price increases than planned, and decision cycles are lengthening. This explains why its stock has lagged HCLTech's in this rally. Transcript +1
HCLTech's constant-currency growth of 2.6% year-on-year isn't dramatically different from TCS's 2.8% or Infosys's 2.4%. The real differentiator was the margin beat and the AI revenue growth rate. But HCLTech also has weaknesses: its software business declined 11.2% year-on-year, and it trades at a higher P/E of 19.56 compared to TCS's 15.82 and Infosys's 14.22. Investor Presentation +3
Here's the core problem: AI is making traditional IT services more efficient, which means clients expect to pay less. Analysts model 2-3% annual AI-led deflation in traditional services for the next couple of years. This is already showing up in hiring patterns. India's top five IT firms collectively cut about 6,981 jobs in FY26, reversing the previous year's additions.
But AI also creates new opportunities. Industry estimates suggest AI-led services could create an incremental market of $300-400 billion by 2030, against the current Indian IT services industry size of about $280 billion. The question is timing: will the new revenue arrive before the old revenue disappears?
TCS seems best positioned to weather this transition. Its 24% operating margin provides a cushion, and its large AI revenue base shows it's already capturing the upside. Infosys is more exposed to the downside, given its guidance cut and pricing pressure. HCLTech is somewhere in between, with fast-growing AI revenue but from a small base. Investor Presentation
This is where it gets interesting. If commercial viability concerns slow AI rollout, the immediate effect would be positive for IT stocks. Less AI spending means less deflation pressure on existing services. But it also means slower growth in new AI-led revenue.
The market is currently pricing in the first part of this equation: relief from disruption fears. That's why we're seeing the "anti-AI" trade. But if AI sentiment rebounds, the trade could reverse just as quickly. We saw this in June, when a similar two-session rally in IT stocks unwound within days as global AI stocks recovered.
Hyperscaler spending on AI infrastructure is booming. Gartner forecasts data center systems spending to grow nearly 56% in 2026. But this money isn't flowing to traditional IT services. It's going to chips, servers, and AI software. Indian IT firms aren't standing under the part of the market that's expanding.
At the same time, hyperscalers are building tools that automate the work Indian firms used to bill by the hour. AWS Transform, for example, has reportedly processed over 1.1 billion lines of code and saved more than 810,000 hours of manual effort. This is direct competition.
But there's also partnership potential. Enterprise AI deployment still requires integration with legacy systems, data governance, and workflow changes. This is where IT services firms can add value. The relationship is complex: hyperscalers are both partners and competitors.
After such a sharp rally, profit-booking is a real risk. The Nifty IT is up 8.69% in a week, and individual stocks have gained 6-11% in two days. This kind of move often attracts short-term traders looking to book quick profits.
Technical indicators suggest the rally might be overextended. While I couldn't verify the 14-day RSI levels, the sheer magnitude of the move raises caution flags. The June episode is a useful reminder: sentiment-driven rallies can reverse fast when the narrative shifts.
Infosys reports Q2 results on October 23. This will be the next major test. The company has already cut guidance once this year. Another disappointment could trigger a broader sector selloff. Conversely, a strong print could extend the rally.
Current valuations don't look stretched. TCS trades at 15.82 times earnings, Infosys at 14.22, and HCLTech at 19.56. These are modest compared to historical highs. But valuations are forward-looking, and they depend on earnings growth.
If the "anti-AI" trade reverses and AI disruption concerns resurface, multiples could compress. This is particularly relevant for TCS and Infosys, which have large enterprise client bases that can negotiate productivity pass-throughs. HCLTech's higher P/E means it has more to lose if sentiment turns.
This rally is about sentiment, not fundamentals. The market is pricing in lower disruption risk, but the underlying challenges remain. AI deflation is real, hiring is slowing, and growth guidance is muted.
HCLTech's strong results provided a catalyst, but they don't change the sector's structural challenges. TCS has the strongest balance sheet and margins. Infosys is the most exposed to near-term headwinds. HCLTech is showing that AI can be a growth driver, but it's early days.
For investors, the key question is timing. Will AI-led revenue growth arrive before legacy deflation bites? The next few quarters, particularly Infosys's upcoming results, will provide important clues. Until then, expect volatility as the market continues to grapple with AI's dual role as both threat and opportunity.
