Nifty IT Index Rises 3.3% as AI Spending Fears Ease

The short version

• The Nifty IT index climbed 3.3% to 33,138.6 on October 23, as buying returned to IT stocks.
• September quarter earnings eased concerns about weak technology spending and AI disruption.
• Persistent Systems, Tech Mahindra and Tata Elxsi remain among Deven Choksey Research's preferred stocks, while Infosys and Wipro face a cautious outlook.

Indian IT stocks rallied on Friday, October 23, with the Nifty IT index rising as much as 3.3% to 33,138.6. Tata Consultancy Services (TCS) led the gains among large IT companies, while Infosys, HCL Technologies and Wipro also moved higher.

The rally came as September quarter earnings helped ease concerns about demand weakness and the effect of artificial intelligence on traditional IT services. The sector had faced months of selling pressure, with investors questioning revenue growth, client spending and the ability of established technology companies to protect their margins.

Benchmark equity indices remained almost flat on Friday, rising just 0.05% each. The stronger move in IT shares pointed to renewed buying interest in a sector that had underperformed over the past year.

How IT stocks performed on October 23

TCS gained around 3%, while Infosys, HCLTech and Wipro advanced approximately 2% each. Midcap IT companies also participated in the rally, although their gains were more modest. Tech Mahindra, L&T Technology Services and Mastek traded lower, showing that the recovery did not extend to every stock.

IT stock or index	Movement on October 23
Nifty IT index	Up as much as 3.3%
TCS	Up around 3%
Infosys	Up around 2%
HCLTech	Up around 2%
Wipro	Up around 2%
Coforge	Up nearly 1%
Persistent Systems	Up nearly 1%
Mphasis	Up nearly 1%
Tech Mahindra	Traded lower
L&T Technology Services	Traded lower
Mastek	Traded lower

The gains followed a strong monthly recovery. After falling 11% in September, the Nifty IT index rose 17% in October alone. Its performance over longer periods also improved, although the index remained below its level a year earlier.

Period	Nifty IT performance
October	Up 17%
Past month	Up 15%
Past three months	Up 14%
Past six months	Up 8%
Past year	Down 10%
Recovery from July low	About 29%

The supplied market figures also put the index's July low at 25,699.10. The October recovery has lifted it considerably from that level, but the negative one year return shows that the recent rally has not erased the earlier losses.

Why IT stocks are recovering

Indian technology stocks came under pressure earlier in the year as global investors reassessed the outlook for software services. Concerns about AI tools replacing some traditional IT work raised questions about future billing rates, employee requirements and the amount clients might spend on outside technology providers.

Slower revenue growth added to those concerns. Geopolitical uncertainty and pressure from customers seeking lower prices also weighed on sentiment. Investors became more cautious about whether large IT companies could maintain growth while adapting to changes in technology spending.

September quarter results have provided some relief. Several large companies delivered better than expected performances, helping investors reassess the immediate risk of a sharper slowdown. TCS reported a healthy set of quarterly results, while HCLTech benefited from stronger AI related revenue and healthy deal wins.

Tech Mahindra reported second quarter revenue above expectations, supported by strong deal wins. Wipro also delivered stronger than expected revenue. Delayed large deals could support its growth in coming quarters, although the timing and scale of any revenue contribution remain important.

The earnings driven recovery follows earlier bouts of buying in the sector. WeloMoney has covered similar movements in its report on IT stocks rising amid easing AI spending fears.

Infosys results are the next earnings test

Infosys was scheduled to announce its September quarter results on October 23. The company was expected to report revenue growth of around 1.8%, making its results and management commentary important indicators of demand across the IT services sector.

Investors will be looking for evidence that clients are approving technology projects and that signed contracts are turning into revenue. Large deal wins can support future growth, but the pace at which those contracts begin generating income matters as well.

Management commentary on AI spending will also attract attention. IT companies are working in a market where clients may spend more on AI related services while seeking lower costs for traditional projects. The effect on total revenue depends on whether new AI work offsets pricing pressure and slower spending in other areas.

Earlier concerns about generative AI and pricing pressure also shaped brokerage views. WeloMoney has examined the issue in its coverage of brokerage target price cuts for major IT stocks.

Which IT stocks brokerages prefer

Deven Choksey Research expects the second half of FY27 to improve as large deals signed earlier start contributing more meaningfully to revenue. The research firm remains positive on Persistent Systems, Tech Mahindra and Tata Elxsi, while taking a cautious view of Infosys and Wipro.

Its outlook also identifies TCS and Tata Technologies among companies that could benefit from deal ramp ups. Growth may be weaker for businesses with greater exposure to European automotive clients and US healthcare. The research firm has flagged the manufacturing verticals of Infosys and Wipro as areas that could face pressure.

For margins, Deven Choksey Research expects EBIT margins at Tier 1 IT companies to remain broadly stable at 20.3%. Midcap companies could benefit if cost pressures seen in the first quarter reverse.

These are brokerage expectations, not confirmed outcomes. Revenue growth will depend on contract execution, customer spending and the speed at which new projects move into production.

Jefferies raises target prices for TCS and Infosys

Jefferies sees scope for Indian IT stocks to receive higher valuation multiples if earnings continue to hold up despite weak macroeconomic conditions and AI related pricing pressure. In a note dated October 21, the brokerage said the earlier correction had already factored in lower long term growth expectations.

However, a sustained recovery would require companies to meet their FY27 and FY28 growth expectations. Weaker sentiment around global AI capital expenditure or further earnings disappointments could limit any valuation recovery.

Jefferies retained its Hold rating on Infosys but raised its target price to Rs 1,160 from Rs 1,020. For TCS, it maintained its Underperform rating while increasing the target price to Rs 2,125 from Rs 1,800.

Company	Jefferies rating	Earlier target price	Revised target price
Infosys	Hold	Rs 1,020	Rs 1,160
TCS	Underperform	Rs 1,800	Rs 2,125

Jefferies raised target prices across large cap IT companies by 14% to 18%. The revisions suggest that the brokerage sees scope to reassess valuations, but its unchanged ratings on Infosys and TCS show that higher target prices do not automatically translate into a more positive stock view.

What investors should watch

The October rally has improved sentiment, but several factors could affect whether the recovery lasts. Elevated crude oil prices, high US bond yields and continued foreign investor outflows remain potential sources of pressure on the broader market.

For IT companies, the next phase depends on operating performance. Investors will be watching:

• Revenue growth and whether demand improves in the second half of FY27.
• Conversion of signed deals into billed revenue.
• EBIT margins and the effect of pricing pressure.
• AI related revenue growth and changes in client spending.
• Management guidance for FY27 and FY28.

The distinction between a short term share price recovery and a lasting improvement in earnings will depend on the coming quarterly results. If deal conversions strengthen and companies meet their growth forecasts, the sector could find further support. If earnings disappoint or technology spending weakens, the recent recovery could come under pressure.

Frequently asked questions

Why did IT stocks rise on October 23?

Indian IT stocks rose on October 23 as September quarter earnings helped ease concerns about demand weakness and AI disruption. The Nifty IT index climbed as much as 3.3% to 33,138.6, while TCS gained around 3% and Infosys, HCLTech and Wipro rose approximately 2% each.

How much has the Nifty IT index gained in October?

The Nifty IT index gained 17% in October, following an 11% fall in September. It was also up 15% over the past month and about 29% from its July low of 25,699.10, although it remained down 10% over the past year.

Which IT stocks are preferred by Deven Choksey Research?

Deven Choksey Research remains positive on Persistent Systems, Tech Mahindra and Tata Elxsi. It also identifies TCS and Tata Technologies as potential beneficiaries of large deal ramp ups, while maintaining a cautious view on Infosys and Wipro.

What are Jefferies' target prices for Infosys and TCS?

Jefferies has a target price of Rs 1,160 for Infosys, up from Rs 1,020, and Rs 2,125 for TCS, up from Rs 1,800. The brokerage retained its Hold rating on Infosys and Underperform rating on TCS.

What is the outlook for Indian IT stocks in FY27?

Deven Choksey Research expects the second half of FY27 to improve as previously signed large deals contribute more to revenue. Jefferies sees scope for higher valuations if companies meet their FY27 and FY28 growth expectations, but warns that weaker AI spending sentiment or earnings disappointments could hurt the recovery.

What risks could affect the IT sector rally?

High US bond yields, elevated crude oil prices and foreign investor outflows could weigh on the market. Within IT, slower client spending, AI related pricing pressure and weaker than expected revenue growth could also limit further gains.