8 hrs ago
Indian IT Stocks Rebound as AI Clouds Large-Cap Outlook
Indian technology shares have risen recently, even as the wider market fell.
Analysts say some of the rebound came after prices had dropped sharply earlier.
They also see signs that companies are spending more steadily on technology and that IT firms are improving operations.
But they warn that earnings may remain weak for several quarters.
Customers want AI to help them get work done at lower cost, which could pressure IT companies’ prices and older ways of earning money.
Some analysts think growing use of AI could also create more work for technology providers.
They expect companies with special skills in AI, cloud and data to have better chances.
That means the recovery may help some firms more than others.
The Nifty IT index climbed nearly 9% from its July 1 low of 25,770 to 28,136, while the Nifty 50 fell about 5%.
Analysts say the rebound reflects factors including earlier valuation declines, reduced AI-disruption fears and signs of steadier enterprise technology spending.
Kotak Securities’ Sumit Pokharna expects muted earnings growth in the second quarter and following two quarters of FY27, and says further corrections remain possible.
Industry observers cite margin gains, restructuring and advanced AI projects, but caution that it is too early to say the sector has stabilised.
Analysts expect a selective recovery, with specialised mid-cap firms potentially better positioned than large or broadly focused companies to adapt to AI.
- Who
- Indian IT companies and analysts from Kotak Securities, Axis Direct and Everest Group.
- What
- IT shares have rebounded, but analysts warn of muted earnings and uneven prospects as companies adapt to AI.
- Where
- India’s stock market and IT sector.
- When
- Since the Nifty IT index’s July 1 low; analysts discuss the second quarter and subsequent two quarters of FY27.
- Why
- The rebound followed a sharp correction and reflects valuation changes, easing AI concerns and early signs of steadier technology spending; the outlook remains uncertain because AI may pressure pricing and business models.
Cautious outlook
Selective optimism
Meaning of the rebound
Cautious outlook
The recovery may largely reflect buying after a sharp correction and may not mean the sector has stabilised.
Selective optimism
Easing AI-disruption concerns, steadier enterprise spending and improving operations offer early signs of support.
AI’s effect on IT providers
Cautious outlook
AI-driven productivity and cost demands could pressure prices and traditional revenue models; large firms may take time to adapt.
Selective optimism
The volume of work needed to adopt and scale AI could partly offset pricing pressure, especially for firms with specialised skills.
Investment prospects
Cautious outlook
Further meaningful declines cannot be ruled out, and a broad-based recovery is uncertain.
Selective optimism
A gradual, selective recovery may favour companies with stronger deal wins and exposure to AI, cloud, data and engineering services.
Key facts
- Nifty IT move
- Rose nearly 9% from 25,770 on July 1 to 28,136.
- Nifty 50 move
- Fell about 5% over the same period.
- Earnings outlook
- Sumit Pokharna expects muted growth in the second quarter and the next two quarters of FY27.
- Potential pressures
- AI-led productivity demands and lower client costs may pressure pricing and traditional revenue models.
- Possible supports
- Analysts cite margin improvement, restructuring, AI projects and stabilising enterprise technology spending.
- Companies mentioned
- Coforge and Persistent are cited as specialised providers that may benefit from their strengths.
Quotes
Sumit Pokharna
Senior vice-president for fundamental research at Kotak Securities
“Some of the mid-cap IT companies, like Coforge, are providing niche skills with strong execution and management focus to their clients.”
financialexpress.com
Sources
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