IT stocks power Dalal Street rally as global AI trade loses steam

The BSE Sensex rose 1,533.72 points, or 2.11%, to close at 74,315.61, while the NSE Nifty50 gained 374.65 points, or 1.66%, to settle at 22,997.35.

The rally came even as concerns over sticky US inflation and the prospect of further monetary tightening weighed on global markets, triggering a sell-off in technology stocks across Asia, particularly in South Korea and Taiwan.

IT stocks led the rebound in the local market, as the correction in artificial intelligence-linked stocks globally raised the possibility of some global capital rotating towards them.

Tech Mahindra gained 4.8%. The company after market close reported a nearly 33% increase in consolidated net profit for the second quarter.

Rally Focus on Large-Caps

It was followed by HCL Technologies (up 2.5%), Infosys (2%) and Tata Consultancy Services (2%). Banking, auto and energy shares also attracted buying interest.

The AI boom has so far drawn global capital towards US markets and semiconductor hubs such as South Korea and Taiwan, and a reversal in these flows could benefit Indian equities, according to Harshit Gupta, head of research at Wealthy Nivesh PMS.

"Rising enterprise adoption of AI may complement this move by creating selective opportunities for Indian IT services firms, as demand grows for implementation, integration and consulting," he said.

Among Asian markets, South Korea's KOSPI tanked 8%, while Taiwan's TAIEX fell 3.4%. The fall of AI stocks will help boost short-term sentiment, said Manish Bhandari, founder, CEO and portfolio manager at Vallum Capital.

Indian earnings won't expand because South Korean and Taiwanese markets are falling, he said. "PE multiple does play a game in short run. That part of money that had left India on the back of AI trade globally may seek value back in select Indian stocks."

The rally, however, remained concentrated in large-cap stocks. Among broader markets, the Nifty Midcap index fell 0.3%, while the Smallcap index declined 1.1%.

Easing US Treasury yields and a stabilising rupee, meanwhile, helped offset some of the pressure from global macroeconomic uncertainty.