LTTS, Coforge, Wipro: IT stocks rally up to 4% as rupee hits record low; what's next?

IT stocks such as L&T Technology Services Ltd (LTTS), Coforge, Persistent Systems, Infosys, Tata Consultancy Services (TCS), Tech Mahindra and Wipro advanced up to 4 per cent in Thursday's trade, as the rupee tumbled to fresh record lows, thanks to mixed economic data and a lack of RBI intervention. 

A weaker rupee boosts India’s services exports—IT, software, and business-process outsourcing—by increasing the rupee value of dollars earned abroad, making revenues more profitable domestically. Stocks also gained as despite the benchmark indices hitting record highs, the sector valuations are marginally above the historical averages. 

LTTS climbed 4 per cent to hit a high of Rs 4,687.05. Coforge Ltd, Mphasis and Persistent Systems Ltd, HCL Technologies and TCS added 2 per cent each. Wipro and Infosys rose 1 per cent each. Cyient was flat.  

The IT sector is trading at a 22.7 times trailing 12-month earnings, which is at 6 per cent premium over its 10-year average of 21.5 times. In a note, MOFSL said IT services' share in Nifty profits has been stable at 15 per cent for the past four years, whereas its weight in the benchmark index is now at a decadal low of 10 per cent compared with a 19 per cent peak in December 2021. 

"This presents an enticing opportunity. Our analysis suggests outsized gains if this plays out, whereas the current levels already bake in the status quo. Limited positive incremental demand commentary is expected until January 2026, when budget cycles reset. The sector remains in limbo, but the market will likely look through this," MOFSL said.

The brokerage said the sector's re-rating depends on a new AI services cycle emerging and that this is largely a waiting game until the AI capex cycle moderates. 

Pankaj Tibrewal, founder and CIO at IKIGAI Asset Manager believes the worst is behind for the IT sector and that his conversation with most of the IT companies suggests that the incremental deal conversion has started to happen.

In an interview to Business Today, he said growth could marginally surprise on the positive side. He said there could be a forex tailwind, which will help these IT companies over the next two, three quarters.

"We believe the wait may now be ending. Similar to the cloud build-out phase from 2016 to 2018, the store, compute, and infra layers are now in place, and while capex may still continue, we expect incremental spending on AI and services to pick up," MOFSL said.

On the sector prospects, BNP Paribas Indai said IT firms are expanding AI offerings, with TCS ramping AI adoption through sovereign cloud launch  in East Africa, research platforms launch with Insper and content management partnership with Box.  Infosys, it said, deepened GCC and sector AI plays, adding agentic tools and its Topaz Fabric stack. HCL Tech has strengthened ties with AWS, SAP and Microsoft, while Tech Mahindra advanced its AWS AI competency and lending platform, the brokerage noted.