Indian IT services shares jumped on Wednesday. Tata Consultancy Services rose 3.2% to Rs 2,476, and Infosys climbed 4.1% to Rs 1,152. The rally follows a shift in investor sentiment as enthusiasm for AI-driven trades cools, prompting a re-allocation toward traditional tech service firms.
Why the rally matters
Jefferies says a waning AI fever is clearing the way for a rebound in India’s IT sector, which has lost a quarter of its value so far this year. The four biggest players—TCS, Infosys, HCLTech and Wipro—still trade 35-50% below their two-year peaks, leaving room for upside if confidence returns.
What drove the slump
Earlier this year, global markets chased AI-related stocks, inflating valuations across hardware and software names. When the Nasdaq 100 corrected and Asian indices like the KOSPI slumped, investors began to doubt whether AI spend would translate into earnings. Semiconductor names, including Samsung Electronics, fell double-digit, dragging sentiment for the whole tech ecosystem. Indian IT firms, heavily dependent on overseas contracts, felt the spill-over as foreign portfolio investors cut back.
The forces behind the bounce
Three factors are now nudging money back into Indian IT:
- Reduced skepticism toward AI – With the hype settling, capital seeks steadier returns, and large-scale service contracts appear safer.
- Foreign portfolio inflows – Overseas funds have recently bought Indian equities, especially those with strong balance sheets.
- Better-than-expected earnings – Quarterly results beat forecasts, reinforcing the view that the business model remains resilient.
Lower valuation multiples also make the stocks look cheap relative to global peers, inviting value-oriented investors.
Takeaway: A cooling AI fever is redirecting capital toward Indian IT services, offering a potential rebound for stocks battered by a 25% year-to-date decline. The sector’s fortunes now hinge on earnings performance and the broader tech market’s risk appetite.