Indian IT Stocks are Booming Again—And it Has Nothing to Do With Indian IT

Six months ago, investors were writing obituaries for Indian IT, as a sector threatened by ‘SaaSpocalypse’ supposedly staring down an "AI extinction event," with foreign investors pulling record amounts.

Today, the pendulum has swung the other way. From its 52-week low of 25,699 on July 1, the Nifty IT index has become one of the market's top-performing sectoral gauges, rising more than 22% and shooting past the 30,000 mark on July 28. This is one of the sharpest reversals in sector sentiment in recent memory.

More importantly, the rebound has not been driven only by heavyweights such as TCS and Infosys.

Persistent Systems has jumped close to 30% from its 52-week low of ₹4,244.5 per share. HCL Technologies rebounded over 29% from a 52-week low on July 1. Meanwhile, TCS shares rose 21%, and Infosys rose 19% during the same period.

Tech Mahindra and Coforge have also posted over 14% and 17% gains over the past month, respectively.

The comeback is real, but it is being influenced far more by a global rotation of money and a beaten-down valuation base than any dramatic improvement in the underlying business—a distinction that is now dividing Dalal Street.

From KOSPI to Nifty

For most of 2026, capital chased one trade relentlessly—AI hardware. Chipmakers across the US, South Korea, Taiwan, and Japan were bid up to extreme valuations while software services, seen as vulnerable to AI-led automation of coding and back-office work, were shunned.

In July, that trade cracked.

The Philadelphia Semiconductor Index fell more than 20% from its June peak, and Korea's chip-heavy KOSPI dropped in a similar fashion over the month even as Indian IT ripped higher. It’s indicative of the beginning of a trend as institutional capital rotates out of expensive, and perhaps saturating, AI infrastructure stocks in volatile East Asian markets and into software businesses rushing to show their AI toplines and rising enterprise adoption.

Did the Earnings Justify It?

Four of the five largest IT companies posted double-digit rupee revenue growth in Q1 FY27.

TCS recorded revenue of ₹72,275 crore, up 13.9% YoY, with $9.5 billion in fresh deal wins, including an $800 million contract with SKF.

Meanwhile, Infosys reported ₹48,211 crore, up 14% YoY, with $3.6 billion of large-deal TCV—61% of it net-new business—alongside $955 million of free cash flow, whereas HCLTech was at ₹34,579 crore, up 13.9% YoY on record quarterly bookings of $2.4 billion.

But strip out the currency effect and the picture is thinner.

A large chunk of that rupee growth came from a weak currency rather than real demand. The rupee touched an all-time low of 96.96 to the dollar on May 20 before recovering only partially to around 95.23 by August 6.

On a constant-currency, sequential basis, TCS’ revenue grew just 0.4%, and sector-wide real growth was closer to 2.8%.

Guidance commentary added to the caution rather than dispelling it. Wipro guided to a range of -1.5% to +0.5% in constant currency for the September quarter, and Infosys trimmed the top end of its FY27 growth outlook to 1.5–3.0%.

The AI Question Nobody Has Resolved

The bullish and bearish cases both have an AI undercurrent.

On the optimistic side, AI is finally showing up in the P&L. Infosys said AI-linked work now makes up 8.2% of revenue, while TCS reported annualised AI revenue of $2.6 billion, or roughly 9% of its topline, up 13.6% sequentially.

Big Tech's own numbers reinforced the read-through for Indian IT vendors.

Microsoft's Azure grew 43% year-on-year, and Amazon Web Services was up 37% YoY. The market rewarded both stocks precisely because they could tie billions of AI capex across Microsoft, Amazon, Google, and Meta to a visible, metered cloud revenue line.

On the bearish side, brokerages including Jefferies have flagged that AI could trigger around 20% revenue deflation in the global IT services sector by 2030.

Gaurav Vasu, Founder and CEO of research firm UnearthInsight, attributes the euphoria on Dalal Street to a valuation reset rather than a turnaround.

"The recent rally in IT stocks appears to be more of a short-term rebound than a reflection of any fundamental change in the sector. A few quarters ago, the dominant narrative was that IT services would struggle to survive the AI disruption; this sentiment is now moderated,” Vasu tells AIM.

At the same time, he adds that IT stocks had become heavily undervalued, with valuation multiples falling to multi-year lows. As investors began rebalancing their portfolios, money naturally started flowing back into the sector.

However, Vasu cautions that the structural challenges around AI, pricing pressure, and demand uncertainty still loom large, so the current rally is more of a valuation-led recovery than a signal of a fundamental turnaround.

Praveen Bhadada, CEO and MD of consulting firm Neovay Global, echoes the caution. "As for the recent rally, and in fact for the last 12 months or so, it is more sentiment than fundamentals—quarterly numbers by themselves don't justify a re-rating. The sector's sustainability will depend on how fast the companies are able to drive the AI transformation and reimagine their core business models."

Macro Tailwinds

Other macro pieces have also quietly helped the sector.

For instance, Brent crude oil prices, after spiking toward $120 a barrel in April due to Iran blocking the Strait of Hormuz, have cooled sharply. As of August 5, the oil prices were hovering below $76 this week on hopes of a US-Iran-Oman deal to reopen the crucial shipping lane, easing input-cost and inflation worries that had weighed on risk assets broadly.

For now, the market appears to have moved from pricing in an AI-driven collapse of Indian IT to betting that the sector can reinvent itself fast enough to grow alongside the technology. Whether that optimism sustains will depend less on the next quarter's earnings and more on whether companies can convert AI into a durable source of revenue before it erodes their traditional outsourcing business.