The Nifty IT index extended its recovery on Friday, climbing 3% to hit the day's high of 27,718.45 and building on Thursday's 4.7% surge to 26,901.60. According to LiveMint, the sectoral index had fallen 6.52% over the previous four trading sessions before Thursday's rebound. Infosys shares surged 5.6% to trade at ₹1,038.50 after touching an intraday high of ₹1,040.60, recovering from a fresh 52-week low of ₹982.40 in the previous session. Other major IT stocks including Tech Mahindra (up 4.5%), Tata Consultancy Services (up 4.5%), Coforge (up 5.92%), Mphasis (up 5.34%), Persistent Systems (up 5.27%), HCLTech (up 4.48%), LTIMindtree (up 3.56%), Tech Mahindra (up 3.27%), Oracle Financial Services Software (up 2.83%) and Wipro (up 2.67%) also led the rally. However, brokerage firm ICICI Securities had previously downgraded seven stocks from within the sector, including TCS, HCLTech, Wipro, Tech Mahindra, LTM, Hexaware Tech and LatentView Analytics, with price targets also being cut for these stocks. Despite the sector-wide downgrades, the broader market showed resilience with the Nifty 50 gaining 0.7%.
The IT sector's strong recovery was primarily driven by a US tech rally and anticipation of quarterly results, as noted by Kotak Securities senior vice-president Sumit Pokharna. Mid-cap IT stocks also experienced strong buying, with Tata Technologies jumping 6.5%, while Persistent Systems, MphasiS and Coforge gained between 5-6%. As per The Economic Times, analysts suggest that IT stocks have seen a meaningful correction in the recent past, making current valuations attractive. Manish Bhandari, CEO and Portfolio Manager at Vallum Capital, highlighted that pessimism has made investors ignore that IT stocks are trading at rare low valuations - levels seen only a few times in the last two decades. The recovery comes as investors anticipate upcoming quarterly results, with the sector's performance benefiting from both domestic demand and the broader market's positive sentiment. Sentiment improved after a significant miss in US jobs creation eased concerns over a potential interest rate hike by the US Federal Reserve, with positive momentum in Indian stock markets further lifting investor sentiment.
Despite the recent recovery, the IT sector has significantly underperformed the broader market over longer periods. According to LiveMint, Nifty IT was the worst-performing sectoral index in the first half of calendar year 2026 (H1CY26), plunging 30%, compared with a 9% decline in the Nifty 50. The sharp fall was driven by global macroeconomic concerns, weak discretionary spending by clients, an earnings growth-valuation mismatch, and disruption arising from artificial intelligence (AI). Over the past one year, the Nifty IT index has declined 29%, while it has fallen 28% over the last six months and is down 10% over the past three months. However, Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, noted that history suggests periods of extreme pessimism often create attractive investment opportunities. He highlighted that the second half of the calendar year has historically been the strongest period for the Nifty IT index over the past 30 years, with average quarterly returns standing at 3.4% in the first quarter, 0.6% in the second quarter, but improving to 10.2% in the third quarter and 11.3% in the fourth quarter.
According to Motilal Oswal Financial Services, Abhishek Pathak, VP of Institutional Research Analyst – Tech & IT, expects Infosys and HCLTech to lower the upper end of their FY27 guidance and warns that the IT sector could see further valuation cuts. As reported by The Hindu BusinessLine, the brokerage expects demand to remain soft in the first quarter of FY27 as macroeconomic challenges, artificial intelligence-related disruptions and geopolitical uncertainties continue to weigh on discretionary spending and enterprise decision-making cycles. The brokerage expects tepid quarter-on-quarter growth across its IT coverage universe in Q1FY27, with the subdued demand environment likely to extend into Q2FY27. It expects Infosys to reduce the upper end of its FY27 revenue growth guidance by 50 basis points, while HCLTech could trim the upper end of its services growth guidance by 100 basis points. The first half of FY27 is tracking below the run rate required to sustain the upper end of companies' full-year guidance, making it increasingly difficult for companies to achieve those targets through second-half performance alone.
According to Motilal Oswal, valuations have corrected meaningfully, with Tier-I IT companies now trading around 30-40% below their 10-year and five-year average valuation multiples. As reported by The Hindu BusinessLine, TCS and Infosys are trading around minus one standard deviation price-to-earnings levels and are nearly 46% and 39% below their respective 10-year average valuation multiples. The brokerage has reduced target valuation multiples by around 15-20% across most of its coverage to reflect a slower growth outlook, rising uncertainty around AI-led productivity and continuing geopolitical overhang. While valuations appear inexpensive, the brokerage believes returns are likely to remain capped until deflationary pressures ease and AI-led implementation use cases begin to scale. A sustained rerating of IT stocks would require evidence of improving demand, stabilising revenue growth and clear signs that AI-led opportunities are beginning to offset productivity-related headwinds. Apurva Sheth from SAMCO Securities emphasized that valuations have corrected below their long-term averages, making the risk-reward equation considerably more favourable than it was a few months ago, though he cautioned that a sustained recovery will depend on improving demand, stabilising revenue growth and the ability of companies to monetise AI-led opportunities.
