IT stocks stage a comeback: Five factors supporting the strong upmove

Information technology (IT) stocks extended their sharp recovery on Tuesday, helping sub-index Nifty IT climb around 4 per cent.

Sandeep Shah, Director at Equirus Securities, said a combination of factors is bringing long-term investors back to the sector to accumulate quality stocks at attractive valuations.

The first factor, according to Shah, is the rising cost of AI operations. He said, "Rising token cost (a key component in AI operating) is making many large enterprises cautious towards their AI-led infra/capex spend, with growing realisation to drive ROI on such capex. This in one way requires tight IT system integration with AI-led infra/hardware/software/tools in large organisations, which require data engineering, cloud migration, application modernisation and creating guardrails/cybersecurity walls, amongst others. These services are better provided by system integrators (SI)/IT Services providers (ISP), considering their hands-on experience in managing complex IT architecture, with a deep understanding of contextual knowledge and business workflows of large enterprises."

Shah's second reason is the possibility of a gradual shift in enterprise technology spending. He stated, "There is now a growing belief from investors that large enterprise may shift their IT budgets a bit from AI-led hardware to IT services and software and both of which will be lead indicators of rising demand for SIs / ISPs in our view. We do agree that uncertain macro will likely result in measured spending in these areas in the near to medium term, but it can create green shoots for demand across many industries."

The third factor relates to recent developments among major AI model providers. Shah noted, "Another reason could be an announcement from large frontier model companies regarding the formation of their services segment/unit. This creates concerns on first look for SIs/ISPs, but the details of the same imply that they are also acknowledging that they need to partner with SIs/ISPs to accelerate AI adoptions in large enterprises, considering the complex and heterogeneous IT/Tech architecture of such enterprises. OpenAI's announcement on forming such a services organisation in partnership with Capgemini (amongst others, including consulting firms, SIs & global investment firms), implies that they also acknowledge this belief."

The fourth reason is valuation comfort following a sharp correction in IT stocks earlier this year. Shah said, "Starting early Feb 2026, IT stocks suffered heavy sell-offs due to fears of AI automation and growing concerns regarding the diminishing role of SIs/ISPs. We, through our sector report titled “AI without SI?” published in Feb 2026, highlighted that role of ISP/SI in this new pivot to AI-led businesses by large Enterprise clients will remain, but likely to be in a different form/shape. This correction made valuations inexpensive."

The fifth factor is improving commentary from global software companies. Shah added, "Recent earnings commentaries from global software companies also indicated that rising AI adoption is not only benefiting AI capex & LLM vendors but also driving demand for software companies."

Echoing a similar view, Ravi Singh, Chief Research Officer at Master Capital Services, said the Nifty IT index has emerged as one of the stronger-performing sectors in recent weeks.

"Nifty IT has been one of the stronger-performing sectors in the market lately, showing impressive strength. Improved sentiment towards global technology companies, growing interest in artificial intelligence, and expectations of stable demand from overseas clients have supported the sector's recovery," Singh stated.

He added, "Heavyweights like Infosys, Tata Consultancy Services (TCS), Wipro and Tech Mahindra have seen renewed buying interest. Investors are also encouraged by improving deal wins and the increasing focus of IT companies on AI-led solutions and digital transformation projects."

On the technical front, Singh said the sector continues to maintain a positive structure with buying support emerging on declines.

"As long as the index continues to hold above key support levels, the trend is likely to remain favourable. Going forward, US economic data, interest rate expectations, and management commentary on client spending will remain important factors to watch for the sector's next move," he further stated.

Meanwhile, Jatin Gedia, Vice-President – Technical Research at Teji Mandi, expects the Nifty IT index to maintain a positive bias and sees it moving towards 32,300–32,500 levels in the short term. "The 29,700–29,500 zone is likely to act as a support area for the index," he added.