Infosys, TCS, HCL Technologies to Tech Mahindra: Why are IT stocks rising today?

The Indian stock market traded with strong gains on Friday, led by a rally in information technology (IT) stocks. The Nifty IT index gained as much as 2.3%, marking its second consecutive session of gains.

The gains in IT stocks also lifted sentiment across the broader Indian stock market, with the benchmark indices rallying more than 1% each.

The Sensex jumped 817.86 points, or 1.06%, to trade at 78,004.73, while the Nifty 50 was higher by 206.60 points, or 0.86%, at 24,279.35.

The IT stocks have been under severe selling pressure this year. The Nifty IT index has fallen by nearly 23% on a year-to-date (YTD) basis, sharply underperforming the benchmark Nifty 50 which has dropped 7% during the same period.

However, over the past month, the Nifty IT index has gained 1.4%, compared with a 0.8% rise in the Nifty 50.

On Friday, Infosys, Tech Mahindra and HCL Technologies led the sectoral rally, rising more than 3% each. They were followed by Tata Consultancy Services (TCS), Persistent Systems, Mphasis and LTIMindtree.

The rally in IT stocks came amid the ongoing June quarter earnings season, with major large-cap IT companies, including TCS, HCL Technologies, Wipro and Tech Mahindra, having already announced their Q1 results.

Why are IT stocks rallying today?

According to Sunny Agrawal, Head of Fundamental Research at SBI Securities, the reason for the rally in IT stocks today is predominantly a reaction to the Q1 results of IT companies over the last six to seven days. Most IT companies have reported either an in-line set of results or numbers that are slightly ahead of estimates.

At the same time, there were no negative surprises in terms of the numbers or the commentary, he noted.

“Most IT companies are upbeat about a very strong deal win environment and, at the same time, a very strong TCV (Total Contract Value). That shows strong revenue visibility. The only challenge is execution, which can shift depending on the global environment. Overall, numbers have been in line with expectations or slightly ahead. Looking at the outlook, there has been no significant deterioration in terms of the growth outlook,” said Agrawal.

He believes that mid-cap IT companies are likely to outpace Tier-1 IT companies in terms of growth for FY27.

Kunal Bajaj, Research Analyst at Choice Institutional Equities also noted that the early Q1 results of IT companies have indicated stable execution, healthy deal pipelines and incrementally better demand commentary across most companies, particularly for H2FY27.

The sector has also benefited from rupee depreciation, lower expectations of near-term US Fed rate hikes and more reasonable valuations following the recent correction.

“Additionally, the recent global sell-off in AI and technology stocks is likely to drive a rotation of capital towards relatively attractive Indian IT names. At the same time, improving confidence that enterprise AI adoption is expanding technology spending opportunities, rather than disrupting incumbent service providers, continues to strengthen the medium-term investment case for the sector,” said Bajaj.

The management commentary has turned incrementally constructive, with most companies indicating that demand is gradually improving, particularly from H2FY27 onwards, while order books remain healthy.

“That said, we do not expect a broad-based recovery in revenue growth over the next one to two quarters as AI-led productivity gains continue to weigh on legacy revenues. A meaningful sector re-rating will require AI-led implementation and transformation revenues to increasingly offset this pressure, but the direction of commentary is encouraging,” Bajaj added.

IT Stocks Valuations

Analysts believe the recent sharp underperformance of IT stocks have made valuations comfortable.

“Most Tier-1 IT companies are now trading at a mid-tier multiple of 12 to 14 times price-to-earnings, and mid-cap companies are trading in the band of 18 to 24 times price-to-earnings. Valuations have definitely turned comfortable. Even on a free cash flow yield and dividend yield basis, there is a lot of comfort on the valuation front,” said Agrawal.

Meanwhile, the growth remains a challenge for the IT companies. As the IT sector Q1 results are in line with expectations, Agrawal sees limited downside for the IT stocks.

Agrawal attributes today’s rise in the IT stocks to the sector rotation which keeps happening in a global uncertain environment.

“After the recent significant underperformance, IT stocks are witnessing mean reversion due to sector rotation, alongside value buying emerging at lower levels,” said Agrawal.

IT Stock Picks

Kunal Bajaj prefers companies with stronger execution, healthy large-deal pipelines and differentiated AI/digital capabilities that can drive market share gains.

“With valuations turning more reasonable after the recent correction, stock selection remains key over a broad-based sector approach,” said Bajaj.

Choice Equities’ top stock picks in the IT sector are Coforge, Persistent Systems, Infosys and Tech Mahindra.

Technical Outlook

On the technical front, the Nifty IT index has given a decisive breakout above the crucial 29,000 resistance level on the daily chart, signalling a positive shift in momentum. The breakout indicates that buyers have regained control and could pave the way for further upside if the index sustains above this level, analysts said.

"The Nifty IT index has also moved above the 20-day and 50-day EMAs, while attempting to reclaim the 100-day EMA, reflecting strengthening short-term momentum. However, it continues to trade below the 200-day EMA, indicating that the broader trend is still in the recovery phase. The RSI has improved to around 59.50, remaining above the 50 mark, which suggests strengthening bullish momentum and increasing buying interest," said Sachin Gupta, VP - Technical Research at Choice Equity Broking.

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