Indian IT Rallies Even As Global Tech Remains Under Pressure, Here’s Why

The Nifty IT index jumped 3.32 per cent on July 28, outperforming the broader market even as technology stocks across Asia came under pressure. The rally comes as investors shift towards Indian IT stocks, attracted by their reasonable valuations, better-than-expected quarterly earnings and fresh buying ahead of the US Federal Reserve’s policy decision.

With today’s gains, the Nifty IT index has risen more than 6.60 per cent over the last three trading sessions. Meanwhile, the benchmark Nifty 50 has gained only 0.50 per cent over the same period.

Coforge led the gains in the Nifty IT pack, surging 10.16 per cent, followed by Tata Consultancy Services (TCS), which rose 4.46 per cent. Mphasis and Tech Mahindra gained around 3.50 per cent each, while Persistent Systems advanced 3.22 per cent. The broader rally was widespread, with LTIMindtree, Infosys, Oracle Financial Services Software (OFSS), HCL Technologies and Wipro gaining between 1.40 per cent and 2.80 per cent.

Over the past three sessions, Coforge has rallied nearly 17 per cent. Persistent Systems has gained 8.71 per cent, Mphasis 8.24 per cent, TCS nearly 7 per cent, HCL Technologies 6.12 per cent, Infosys 5.50 per cent, Tech Mahindra 4.77 per cent, Oracle Financial Services Software 4.40 per cent and Wipro 3.56 per cent. LTIMindtree has remained largely unchanged during the period.

Why Are Indian IT Stocks Rallying

Analysts said the rally is being driven by multiple factors rather than a single trigger.

Shruti Jain, chief strategy officer at Arihant Capital Markets, said, “The bounce in IT is being driven by a combination of factors coming together at the same time, rather than any single trigger.” She said valuations had become attractive after frontline IT companies were trading “roughly 30–40 per cent below their long-term average multiples” following months of underperformance. Better-than-expected June quarter earnings, resilience in the BFSI vertical, a weaker rupee that is “a direct margin tailwind for our exporters”, and aggressive short covering have also supported the rebound.

Paresh Bhagat, chairman of Mangal Keshav Financial Services, echoed the view, saying the nearly 7 per cent rise over the past three sessions “looks less like the start of a new bull run and more like a relief rally”. He said valuations had already priced in an overly pessimistic outlook, while earnings from companies, such as TCS, HCL Technologies, LTIMindtree and Tech Mahindra were better than feared. He added that brokerage upgrades and easing concerns around further US monetary tightening also triggered short covering.

Sumit Pokharna, vice president, fundamental research at Kotak Securities, said the recent correction had already factored in much of the bad news. “Post recent meaningful correction in the stock prices of Indian IT companies, a lot of the negatives are already in the price. Hence, we are seeing value buying in the IT sector,” he said. He remains bullish on Infosys, TCS, Tech Mahindra and Coforge.

Is This More Than An AI Rotation

The rally has come even as technology stocks across Asia remain under pressure amid concerns over the massive capital spending required to sustain the artificial intelligence (AI) boom. Unlike global technology indices, Indian IT companies do not have pure-play AI businesses, making them relatively less exposed to the ongoing correction in expensive AI stocks.

Jain said the recent move is only partly linked to the global AI selloff. “What we are seeing globally is an ‘AI unwind’,” she said, adding that investors are booking profits in richly-valued AI winners and rotating into cheaper, oversold sectors such as Indian IT.

“But I would not confuse a rotation trade with a change in fundamentals. This is not the market suddenly deciding AI is bad for Indian IT,” she said.

Instead, she said the current rally is “a valuation-and-positioning bounce that the AI unwind has amplified, not as confirmation of an anti-AI thesis”.

Bhagat also dismissed the idea that the market has turned against AI. “What we are seeing is more of a reversal of excessive AI-related pessimism than a full-fledged AI optimism trade,” he said.

He noted that the latest earnings suggested AI was creating new opportunities for IT services companies rather than hurting them immediately. 

“Enterprises still need partners to implement AI, modernise cloud infrastructure, manage data and redesign business processes. That's where IT services companies are finding fresh demand,” he said.

At the same time, analysts have cautioned that AI’s long-term impact on profitability remains uncertain. Bhagat said the bigger question is whether AI will improve margins or eventually force companies to lower prices as software delivery becomes more efficient.

Pokharna also expects AI-related discussions to remain a key theme over the next few years. He said clients continue to prioritise investments in AI, cloud, modernisation and productivity while remaining selective on discretionary spending. Although AI-led productivity is resulting in pricing pressure during contract renewals, “the headwinds from revenue deflation are being offset by revenue from new deals”. He said he expected AI adoption beyond software engineering to accelerate significantly after FY2027.

Fed Decision In Focus

The rally also comes ahead of the US Federal Reserve's policy announcement on July 29, where the central bank is widely expected to keep interest rates unchanged at 3.50-3.75 per cent range. According to CME FedWatch, markets are pricing in for a 64.20 per cent probability for a status quo.

Investors will closely watch the Fed’s commentary for clues on the timing and pace of future rate cuts, as well as its assessment of the US economy. Any shift in the rate outlook could influence global technology stocks, corporate IT spending and demand for outsourcing services.

Going forward, for the September meeting, markets are pricing in a 55.40 per cent probability for a 25 basis point rate hike and a 24.70 per cent probability for a 50 basis point rate hike.

What Should Investors Do?

Analysts have said that investors should avoid rushing to buy IT stocks after the recent rally. Jain said long-term investors with diversified portfolios can consider allocating “somewhere in the region of 10–15 per cent” of their total portfolio to the IT sector. However, she advised investors to “accumulate in a staggered manner through systematic investment plans (SIPs) or on dips rather than deploying in one shot” and focus on quality companies with “strong balance sheets, healthy deal pipelines and a credible AI strategy”.

Bhagat also recommended an allocation of around 10-15 per cent for diversified long-term portfolios, but cautioned against buying solely because of the recent rally. "The key here is to avoid FOMO. Sharp rallies often attract late buyers, but long-term investors are usually better served by adding exposure during meaningful corrections rather than chasing momentum," he said.

Pokharna said he expected the macro environment to remain uncertain in the near term, with clients staying selective on discretionary spending despite continued investments in AI and cloud.