Domestic technology stocks have staged a strong turnaround in October after suffering heavy losses, as better-than-expected September-quarter performance, attractive valuations, and fears of a global AI slowdown have prompted investors to turn their attention back to software stocks, making the Nifty IT index a standout performer.
TCS was among the top performers in the pack, surging 22% in October, followed by Tech Mahindra and Wipro, with each surging 20%. Mphasis was next on the list with a 16% rally. Infosys gained 16%, while HCL Technologies advanced 15.5%.
The rally follows a global selloff in software stocks earlier this year, as some investors feared that AI could disrupt their business models. Slowing revenue growth amid geopolitical concerns and rising client demand for lower prices also sapped investor sentiment.
Amid strong support from heavyweight stocks, the Nifty IT index advanced 16% and reclaimed the 30,000 mark, touching its highest level in eight months last week. The gauge has now recovered 22% from its July low but remains down about 18% this year, putting it on track for its worst annual performance since 2022.
The combined market capitalisation of Nifty IT stocks increased from about ₹22.01 lakh crore to ₹25.88 lakh crore, an increase of ₹3.87 lakh crore.
September-quarter results revive confidence in IT stocks
The September-quarter results have offered investors some reassurance about the sector’s near-term growth prospects, helping revive sentiment towards IT stocks.
Stronger-than-expected performances from major companies have also eased some concerns over slowing demand and the potential impact of artificial intelligence on traditional software services.
Tech Mahindra’s second-quarter revenue came in above expectations, aided by robust deal wins, while Wipro also reported stronger-than-expected quarterly revenue, with signs that delayed large deals could support growth in the coming quarters.
HCLTech’s quarterly performance, stronger AI-related revenue, and healthy deal wins bolstered confidence in the sector’s earnings outlook. TCS also delivered a healthy set of second-quarter results.
The sector’s bellwether, Infosys Ltd, is due to release its second-quarter earnings and commentary on October 23, with the Bengaluru-based firm expected to report revenue growth of just 1.8%.
Can earnings resilience trigger a valuation re-rating for IT stocks?
Jefferies believes Indian IT stocks could see a valuation re-rating as earnings resilience challenges pessimistic assumptions about long-term growth. In its October 21 note, the brokerage said the sector’s share-price correction had already factored in lower growth expectations, leaving room for recovery if companies avoid further disappointments.
“With IT firms still delivering growth despite weak macro and AI deflation, investors are more willing to revisit their terminal growth assumptions,” the brokerage said in a note.
Jefferies cautioned that the sector’s outlook remains uncertain, particularly if global AI capital expenditure sentiment deteriorates or companies fall short of FY27 and FY28 growth expectations. Any re-rating, therefore, is likely to depend on individual companies’ ability to sustain revenue growth, deliver earnings, and justify higher valuation multiples rather than a broad-based recovery across the entire IT sector.
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