Summary of this article
Nifty IT surged over 17 per cent in October to an eight-month high
Experts cite trade deal hopes, earnings and AI spending as key drivers
Weak demand and pricing pressure could limit further gains in IT stocks
The Nifty IT index hit an eight-month high on October 21, 2026, rising 2.88 per cent to close at 32,422.50, supported by broad-based gains across IT stocks.
Index heavyweights Wipro, Infosys, HCL Technologies, Tech Mahindra led the rally, climbing more than 3 per cent each. Mid-cap IT stocks Mphasis, Coforge and Persistent Systems also rose in the range 2-3 per cent. Tata Consultancy Services (TCS) gained 2.77 per cent, while LTM and Oracle Financial Services Software also settled in the positive territory.
The index has rallied more than 17 per cent this month, recovering sharply from its recent lows. However, it remains down 19.50 per cent, leaving investors to assess whether the rebound can extend or whether the rally has run ahead of the sector’s earnings recovery.
What Is Driving Rally In IT Stocks
Hopes of an India-US trade deal, expectations of improving demand for IT services, and better-than-feared quarterly earnings have supported the recent rally, according to market experts.
Sumit Pokharna, senior vice-president, fundamental research at Kotak Neo, said expectations of an improvement in IT services demand and hopes of an India-US trade deal were among the factors lifting the index.
“The common theme is that clients are doubling down on growth,” he said.
Investors are also looking for signs that spending on artificial intelligence (AI), cloud computing, data centres and digital transformation will translate into stronger revenue growth for IT services companies.
Ravi Singh, chief research officer at Master Capital Services, said the next leg of gains would depend on stronger second-quarter earnings, improving US technology spending, healthy deal wins and faster conversion of order books into revenue.
“Growing demand for AI, cloud, cybersecurity and data services could support growth. Continued margin improvement and attractive valuations may further strengthen investor confidence,” Singh said.
However, the recent rally does not necessarily signal a broad-based recovery in demand. Companies still need to demonstrate that new contracts and technology investments are translating into higher revenues.
Is The Recovery Sustainable
Experts remain divided on how long the rally can last, with the improvement in investor sentiment yet to be matched by convincing evidence of a sustained recovery in client spending.
Pokharna said it was too early to conclude that the IT sector had entered a sustained recovery, citing geopolitical uncertainty, rising crude oil prices and the possibility of interest rate hikes by central banks.
“We will wait for a few more quarters. However, we believe investors need to be stock specific at this point in time,” he said.
Pokharna said he emains positive on TCS, Infosys, Tech Mahindra, Coforge and Persistent Systems.
Kunal Bajaj, research analyst at Choice Institutional Equities, said the Nifty IT index’s rally this month reflected better-than-feared second-quarter earnings for the financial year 2026-27 (Q2FY27), a recovery in risk appetite and a shift in investor interest from global AI stocks to traditional IT services companies.
However, he cautioned that the rally had outpaced the improvement in underlying demand.
TCS reported only 0.50 per cent quarter-on-quarter (q-o-q) constant-currency revenue growth, according to Bajaj, highlighting that a broad-based recovery in demand remained unproven. A weaker rupee could support earnings, but might not be enough to offset a prolonged slowdown in client spending.
“The next leg of gains will depend on evidence of a recovery in discretionary spending, stronger organic revenue growth, conversion of large deal wins and improved FY27 guidance,” Bajaj said.
Can AI Spending Drive The Next Leg Of Gains
AI-related investments could provide a fresh growth opportunity for IT services companies, but investors will need to distinguish between higher technology spending and revenue that companies can actually recognise.
Pokharna said management commentary pointed to continued investments in AI infrastructure, cloud platforms, data centres and product development. Client conversations around AI spending had also been positive, with companies increasingly prioritising growth over cost optimisation.
Bajaj, however, said AI could create opportunities for IT companies while putting pressure on traditional revenue streams.
AI-led transformation could help service providers expand client budgets, but productivity gains may also put pressure on pricing and reduce demand for some conventional services.
"Sustainable margin expansion and demonstrable AI monetisation will be critical to earnings upgrades,” Bajaj said.
He added that investors should track whether large deal wins translate into revenue growth, whether higher revenues lead to operating leverage and whether AI-related productivity gains result in incremental profits for service providers.
If these improvements materialise, earnings could justify the sector’s recent re-rating. If deal momentum fails to translate into revenue or AI-driven efficiencies lead to lower pricing, the rally could lose steam.
Should Investors Buy IT Stocks After The Rally
The sharp rise in IT stocks has made stock selection more important, with experts advising investors to focus on earnings visibility, deal conversion and valuations rather than chase the broader index.
Singh said investors should avoid buying stocks indiscriminately after the monthly rally. He suggested that existing investors could consider using the rally as an exit opportunity, while fresh investors could look at mid-cap and small-cap IT stocks such as Coforge and Persistent Systems.
Bajaj also advised selectivity, favouring companies where improving deal conversion and better demand visibility could lead to upward earnings revisions at reasonable valuations. The upcoming quarterly results and revisions to FY27 guidance will be important indicators of whether the rally has fundamental support.
