Information Technology stocks extended their recovery for the third consecutive session, with the Nifty IT index jumping 3.2% on Tuesday and recording 7% gains over three sessions. According to reports from The Economic Times, this represents a significant turnaround after a prolonged period of decline. The benchmark Nifty ended 0.1% lower on Tuesday, while being down 0.3% over the past three days, highlighting the divergent performance between IT and broader market segments.
The primary catalyst for the IT sector's recovery has been the rupee hitting a record low of 96.61 against the dollar on Tuesday. As reported by The Economic Times, research analyst Anshul Jethi from LKP Securities noted that the rupee hitting fresh lows has improved sentiment around IT companies, as it could lead to a 150-200 basis point improvement in their margins. Since software services exporters earn most of their revenues in US dollars, a weaker rupee against the dollar directly boosts their margins, providing significant operational leverage for the sector. The rupee's weakness stems from multiple factors including OMC demand for dollars to pay for crude imports of $3-4 billion per month and Foreign Institutional Investors withdrawing approximately ₹2.65 lakh crore from Indian equities in 2026.
According to The Economic Times, Coforge, Infosys and LTM (erstwhile LTI Mindtree) gained 4-5% on Tuesday, while other IT constituents were up between 1.7% and 3.2%. The sector's recovery comes as valuations of top Indian software exporters have fallen to levels seen during the global financial crisis in 2008-09. Tata Consultancy Services (TCS), Infosys, HCL Technologies and Wipro are currently trading at trailing price-earnings (P/E) multiples between 15 and 18, representing the lower end of the spectrum and indicating lower-than-average valuations.
Despite ongoing AI disruption concerns, recent developments have improved investor sentiment toward IT services firms. As reported by The Economic Times, analyst Sushovon Nayak from Anand Rathi Institutional Equities highlighted that Globant management highlighting the importance of IT services firms in AI implementation, Cognizant increasing its buyback size, and some weakness in leveraged US AI-infrastructure stocks have improved sentiment. However, analysts note that nearly 95% of enterprises still operate on legacy models and have yet to meaningfully adopt AI, indicating significant growth opportunities remain for traditional IT services providers.
According to The Economic Times, analysts expect a J-curve recovery in IT revenues going forward, with specific recommendations including LTM, Tech Mahindra and Infosys among large-caps, and Mphasis and Persistent Systems in the mid-cap IT space. Sumit Pokharna from Kotak Securities maintains a positive view on TCS, Infosys and Tech Mahindra, noting that while AI adoption could improve productivity, part of the cost benefits to these firms from AI is likely to be passed on to clients, which may lead to revenue deflation. The sector's recovery is expected to continue with sharp swings amid intermittent concerns around AI product launches.
