Indian IT stocks surged 2.7% on Monday, marking their strongest single-day gain in nearly two weeks since May 19, with the Nifty IT index closing at its highest level since April 23. According to The Economic Times, this rally was driven by attractive stock valuations and recent AI-led partnerships that drew investor interest and prompted traders to build fresh long positions. The Nifty IT index advanced 2.7%, even as the benchmark Nifty declined 0.7%, demonstrating the sector's resilience amid broader market weakness. Tech Mahindra, Infosys and LTM rose 3.7% each, while Persistent Systems gained 3.6%, with Coforge and Oracle Financial Services Software advancing 2.6% and 2.1% respectively.
The rally was significantly boosted by Wipro's expanded Agentic AI partnership with ServiceNow and Coforge's acquisition of Encora, which helped ease concerns that had weighed on the sector earlier due to AI-linked disruption fears. As per The Economic Times, Gaurav Sharma, head of Research at Globe Capital, noted that "Indian IT firms are following suit of American companies like Anthropic and OpenAI by taking up contracts and tie-ups which are perceived as promising by investors." The momentum comes after a sharp underperformance this year, with the Nifty IT index having fallen over 21% so far in 2026, compared with a 10.5% decline in the benchmark Nifty. The recent momentum has turned positive, with the IT index gaining about 3% over the past week, while the Nifty has fallen 2.7%.
Despite widespread concerns around the sector, aggregate quarterly sales of Nifty IT companies have steadily risen from nearly ₹1.25 trillion in March 2021 to over ₹2.2 trillion in the latest quarter, according to Business Standard. Profitability has also remained resilient, with quarterly profits touching a record high of around ₹35,000 crore, achieved despite challenging demand conditions and cautious client spending. As per Business Standard, the Nifty IT index has traded at a median price-earnings ratio of 22.2x for most of the last two decades, but today the sector is available at around 20x earnings, placing valuations below long-term averages. This creates an interesting divergence where earnings are making new highs while valuations have compressed significantly over the past few years.
The weight of Nifty IT within the Nifty 500 has fallen to just around 5.5 per cent, the lowest level in more than a decade and well below its long-term median of 10.5 per cent, as reported by Business Standard. This decline reflects years of underperformance relative to sectors such as financials, manufacturing, defence, and capital goods. Technical indicators suggest that Nifty IT is currently trading close to a major support area near 26,000, a level that has repeatedly acted as resistance and support over the last several years. RSI has formed a positive divergence, where prices made fresh lows but momentum indicators failed to confirm the weakness, often an early sign that selling pressure is losing strength.
Technically, the Nifty IT index has immediate support established at the 29,300-28,900 zone, while initial resistance is positioned at 30,500, with a broader multi-week position of 31,200, as per Nischal Jain, Quant Researcher at Share.Market by PhonePe. Gaurav Sharma from Globe Capital said the Nifty IT index is on the verge of a breakout from an inverse head and shoulder pattern, which could extend the rally towards 31,500. While near-term volatility may persist, valuations remain compelling over a two-to-three-year horizon, with Sharma's top picks being OFSS, Tech Mahindra, Coforge and Mphasis, and recommending IT Exchange Traded Funds for retail investors. The sector now represents a much smaller portion of the Indian equity market than historically, creating potential for significant rebound if sentiment improves.
