₹4 lakh crore rally, ₹6,500 crore FII buying: Are IT stocks finally making a comeback?

The rally has been broad across the large-cap technology universe. TCS shares have been the biggest gainer in the month and have jumped 23%. Tech Mahindra has gained 20%, Mphasis advanced 19%, Wipro climbed 19%, Infosys rose 17% and HCL Technologies increased 16%.

The combined market capitalisation of Nifty IT stocks increased from about ₹22.01 lakh crore to ₹25.88 lakh crore, an increase of ₹3.87 lakh crore. Oracle Financial Services Software was the exception, declining about 5%.

The move has also attracted foreign investors. NSDL data shows foreign portfolio investors bought ₹6,463 crore of IT stocks in the third quarter. The latest shareholding data suggests that the buying has been selective, with foreign ownership in Wipro rising from 8.85% in June to 9.46% in September, while Infosys saw FII ownership rise from 27.09% to 27.44%.

Foreign ownership in Oracle Financial Services Software rose by 173 basis points to 11.43%. Persistent Systems saw no change in FII ownership, while TCS and Mphasis recorded marginal declines.

The data points to early institutional interest rather than a broad-based return of foreign capital to the entire sector. But after months of selling pressure and valuation compression, even selective buying is being treated as a potential shift in market positioning.

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Nifty IT index has risen about 17% in October after falling roughly 20% during the first two months of 2026. The index has outperformed the Nifty 50 by 12 percentage points since February, with most of that relative outperformance coming in October.

Jefferies said the October rally has been driven primarily by price-to-earnings rerating as most IT stocks have not seen revenue growth/EPS upgrades. “In our view, the PE rerating has been driven by improving sentiment on long-term growth outlook for IT firms because (1) Consensus US$ revenue growth expectations for FY28 have not seen material cuts after 2QFY27 results, unlike 4QFY26 and 1QFY27, (2) With IT firms still delivering growth despite weak macro and AI-deflation, investors are more willing to revisit their terminal growth assumptions,” Akshat Agarwal and Ayush Bansal of Jefferies said.

Jefferies estimates that current prices imply organic constant-currency revenue growth of between 0% and 9% for large IT companies over FY26-FY36, and 6%-14% for mid-sized firms. For most companies, those implied growth rates are 2-4 percentage points below the growth delivered during FY16-FY26.

Infosys and Sagility are the most heavily discounted against their historical growth trajectories, with the implied growth rate about six percentage points lower than their past performance. Jefferies sees Infosys and TCS as the only large-cap IT companies with scope for further rerating, while Sagility stands out among mid-cap names.

The rally, however, is unfolding against a cautious earnings backdrop.

HSBC said FTSE India IT is trading at 18 times forward earnings, below its five-year average of about 23 times. But the lower valuation reflects weaker growth. Sector earnings growth has slowed from an already modest 4%-5% in recent years to about 2%-3%, largely because of AI-led deflation.

HSBC expects FY27 to be the most challenging year for the sector, followed by a recovery in FY28 and FY29. Even then, growth is expected to reach only the mid-single digits.

Axis Mutual Fund remains underweight on IT services, saying AI-related spending is still concentrated in infrastructure build-out rather than discretionary technology services. The fund house said traditional service lines remain under pressure, while AI could act as a margin and growth overhang before becoming a meaningful revenue contributor.

The AMC also flagged intensifying competition among large IT firms, mid-sized companies, consulting businesses and specialised AI and data providers. Although a weaker rupee could support margins, part of that benefit may be reinvested in building capabilities.

Brokerage firm PL Capital has also retained an underweight stance, with a 150-basis-point underweight on IT services. It said the sector remains exposed to slow growth and uncertainty over AI’s impact on profitability. Large companies are likely to remain the survivors, but intermittent volatility could continue because of pressure on realisations, growth and margins.

Mid-cap IT companies may adjust faster to the new environment and offer better growth prospects, PL Capital said, although valuations remain demanding in many names.

The market is therefore pricing a more selective recovery rather than a clean sector-wide turnaround. Jefferies said valuation upside becomes less attractive for large-cap IT beyond 17%-18% earnings multiples unless the growth outlook improves materially.

(Data: Ritesh Presswala)