Indian IT stocks staged a remarkable comeback this week, adding ₹2.6 lakh crore in market value as the sector gained 12% to become the best-performing index. According to The Economic Times, this represents a significant turnaround from earlier concerns over AI adoption and earnings growth. The rally was led by Tech Mahindra with over 16% gains, followed by Wipro at 13%, while TCS, Infosys and HCL Tech each advanced 12%. This performance comes after FIIs and other investors had fled IT stocks earlier this year as AI-linked stocks gained momentum amid heightened concerns over slowing demand and earnings. The latest session saw strong performance across major IT stocks, with Tech Mahindra surging 7% to ₹1,769 after reporting strong Q2 results, Wipro rallying 6% to ₹185.14 on management's strong pipeline highlights, and both Infosys and TCS soaring 4% each.
The IT sector's revival was significantly aided by a global selloff in AI-linked stocks that wiped out more than $1 trillion in market value from 20 of the world's most valuable AI and semiconductor companies this week. As reported by The Economic Times, concerns over interest rate hikes, AI financing and intensifying competition weighed heavily on investor sentiment. The crisis deepened after OpenAI told investors that its annualised revenue for September was nearly $50 billion, lower than the figure it had indicated earlier, with the company previously telling investors that its September revenue run rate was approaching $70 billion. This downturn in AI-linked stocks created a positive readthrough for Indian IT companies, which had sold off sharply through the year as analysts said they lagged behind global AI companies.
IT companies delivered better-than-expected Q2 earnings that provided crucial support for the sector's recovery. TCS reported 15% year-on-year growth in consolidated net profit at ₹13,884 crore for the second quarter, up from ₹12,075 crore a year ago, with the Board declaring a second interim dividend of ₹12 per share for FY2026-27. HCLTech had earlier delivered exceptional September quarter results with consolidated net profit of ₹5,132 crore, up 21.2% year-on-year and 11% sequentially, beating estimates and reporting advanced AI revenue of $219 million in constant currency terms. The sector's strong earnings performance came at an opportune time, helping to offset earlier concerns about AI adoption and earnings growth.
Despite the recent rally, analysts remain cautiously optimistic about the IT services sector's prospects. As reported by The Economic Times, Axis Securities notes that the pace of global AI adoption over the next 2-3 years remains a key concern for earnings growth and valuations. However, Krishna Sanghavi from Mahindra Manulife Mutual Fund suggests that if questions arise globally around the commercial viability of AI, potentially slowing its rollout, market concerns over Indian IT companies could ease. Gaurav Garg from Lemonn Market desk expects the sector to remain positive in the near term, supported by improving sentiment and buying interest following HCLTech's results, but warns that after a sharp rally, some profit-booking and volatility cannot be ruled out.
Despite the recent gains, the Nifty IT index remains significantly underperformed over the past 12 months, declining 14.78% compared to the Nifty 50's* 10.67% fall. As reported by NDTV Profit, this underperformance is particularly notable given that the Nifty Midcap 100 has gained 0.74% and the Nifty Smallcap 100 has risen 7.17% over the same period. The IT sector's decline began in February and reached approximately 30% from its peak by late June, though it has since recovered roughly 10% from those lows. The current rally represents a 'buy-on-dips, sell-on-rally' mood as described by market experts, with the latest momentum driven by strong quarterly results and AI-led growth themes.
