Indian IT stocks swing as AI fears hit valuations, rupee weakness boosts exporters

Indian IT stocks have fallen up to 34 per cent in 2026 as AI disrupted outsourcing model. Analysts remain cautious on FY27 outlook. They prefer TCS, Infosys, HCLTech, Coforge

In fact, ⁠IT has been the worst-performing major sector in the Indian market over the past 12-18 months. In May, 2026, the Nifty IT index touched a near 3-year low, losing more than a fourth of its value since the start of the year.

Mumbai: Battered shares of Information Technology companies advanced on Tuesday for the third straight trading session, as a weakening rupee lifted sentiment, offsetting recent concerns over AI-related disruptions. The Nifty IT index jumped 3.2% on Tuesday and clocked 7% gains in three sessions, signalling a turnaround after a prolonged bout of downsides. The benchmark Nifty, which ended 0.1% lower, is down 0.3% in the past three days. Coforge, Infosys and LTM (erstwhile LTI Mindtree) gained 4-5% on Tuesday, while other constituents were up between 1.7% and 3.2%. "The rupee hitting fresh lows has improved sentiment around IT companies, as it could lead to a 150-200 basis point improvement in their margins," said Anshul Jethi, research analyst, LKP Securities. The rupee made a record low of 96.61 against the dollar on Tuesday.131213549 As software services exporters earn most of their revenues in US dollars, a weaker rupee against the dollar boosts their margins. According to Sushovon Nayak, research analyst at Anand Rathi Institutional Equities, recent developments such as the Globant management highlighting the importance of IT services firms in AI implementation, Cognizant increasing its buyback size, and some weakness in leveraged US AI-infrastructure stocks on the back of higher US bond yields, have improved investor sentiment towards the IT sector. The Nifty IT index is down nearly 23% this year, against Nifty 50's fall of 9.7%, as the launch of new AI tools, aimed at increasing productivity, is perceived to be a threat to the business of traditional IT services providers. Investors may have overreacted to concerns around AI taking the place of traditional software systems, said analysts. "Our recent interactions with TCS management suggest that nearly 95% of enterprises still operate on legacy models and have yet to meaningfully adopt AI, indicating growth opportunity for the sector remains," said Sumit Pokharna, vice-president - fundamental research, at Kotak Securities. "However, part of the cost benefits to these firms from AI is likely to be passed on to clients, which may lead to revenue deflation," he said. The sharp recovery in the past three sessions comes as valuations of top Indian software exporters fall to the levels seen in the global financial crisis in 2008-09. Tata Consultancy Services (TCS), Infosys, HCL Technologies and Wipro are trading at trailing price-earnings (P/E) multiples between 15 and 18, the lower end of the spectrum, indicating lower-than-average valuations. Top picks The rebound may continue, but it will be marked by sharp swings amid intermittent concerns around AI product launches. "We expect a J-curve recovery in IT revenues going ahead," said Nayak. He likes LTM, Tech Mahindra and Infosys amongst the large caps, and prefers Mphasis and Persistent Systems in the mid-cap IT space. Pokharna said large-cap IT valuations remain attractive, and he maintains a positive view on TCS, Infosys and Tech Mahindra. "While LLM companies may disrupt market shares of traditional IT players and FY27 could remain challenging for the sector, AI adoption could improve their productivity," said Jethi, who is positive on Persistent Systems and HCL Technologies. "Valuations in the sector have also turned attractive enough for investors to take a contrarian view on the AI theme."

Shares of Indian IT companies, including Infosys and TCS, jumped up to 5% on Tuesday, extending their rebound from the previous session. The momentum in IT counters comes after a sharp correction that has dragged sector valuations closer to levels last seen during the 2008–09 subprime crisis.The Nifty IT index jumped more than 4% to hover near 29,566 on Tuesday morning, while the broader Nifty index was trading with only marginal gains. The sectoral index has now gained more than 8% (over 2,205 points) in just three sessions.Heavyweight Infosys shares were the top gainers on the index, jumping nearly 5% to trade at Rs 1,198 apiece on NSE. Shares of the IT major have now risen about 9% over the past three days, but remain down 27% in 2026 so far and 10% over the past month.Coforge, LTI Mindtree, HCL Technologies, Mphasis, Persistent Systems and Tech Mahindra shares jumped around 4% each on Tuesday, while OFSS and Tata Consultancy Services (TCS) shares surged more than 3% each. Wipro shares rose over 2%.AI shock makes IT valuations cheaper Shares of TCS, Infosys, HCL Tech and Wipro are currently trading with price to earnings (P/E) ratios ranging between 15 and 19, nearly half of the peak valuations that these IT stocks once commanded around four years ago.These stocks saw a sharp decline early in 2026 after AI startup Anthropic launched plug-ins for its Claude Cowork agent, which could automate tasks across legal, sales, marketing and data analysis. "We call it the ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks," Bloomberg quoted Jeffrey Favuzza from the equity trading desk at Jefferies as saying. While the doomsday prophets continue to debate about the future of the IT companies following fresh AI advancements, investors were quick to analyse the cheap valuations. Additionally, a sharp decline in the rupee also helped the IT stocks, as the IT companies mostly derive their revenue in US dollars.Goldman Sachs on InfosysGoldman Sachs kept a ‘Neutral’ rating on the shares of Infosys, with a target price of Rs 1,290 apiece. This implies an upside potential of nearly 13% from the stock’s previous closing price. The firm, in a note, highlighted key takeaways from Infosys’ management meeting. Despite a soft discretionary spending environment, Infosys management highlighted strength in BFSI and EURS verticals and continued strong deal wins, Goldman Sachs noted, adding that some AI-driven deflation is likely in parts of the value chain, although Infosys expects it to be offset as new TAMs open up.Also read: Why 10 stocks suffered massive Rs 17,000 crore mutual fund selloff in April Infosys sees scope for a partnership approach with frontier model companies as enterprises deploy AI, rather than services companies being rendered redundant due to AI adoption, Goldman Sachs further said.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

ET Intelligence Group: The latest selling spree in IT stocks has impacted valuations of top Indian software exporters, taking them near the levels seen during the subprime crisis in 2008-09. The stocks of Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro currently trade at trailing price-earnings (P/E) multiples between 15 and 18. They have halved from the peak valuations seen four years ago when Covid-related disruptions boosted demand for enterprise IT solutions. These stocks have lost nearly 30% so far in 2026 amid rising concerns over the impact of advancement in artificial intelligence (AI) technology on client servicing and deployment of IT solutions. Improving AI capabilities in the field of coding, testing and debugging are expected to affect the revenue potential of Indian IT service providers, which have long relied on headcount based execution. In addition, the recent announcement by OpenAI to establish a subsidiary OpenAI Deployment Company to help enterprises to integrate AI solutions will facilitate its direct entry in the enterprise process management, which was long considered as a strong forte of Indian IT companies.131188037 While valuations of IT companies have come under pressure on a few occasions over the past 15 years, the current retreat is significantly steep. For instance, P/E of TCS, the country's largest IT exporter and Infosys, the second largest, fell below 20 during the Taper Tantrum phase in 2013 and later in 2017 when the US administration tightened H1B visa norms. Their current P/Es at 16.7 and 15.7 have, however, breached these levels and are now closing in with the lows seen during 2008-09 when P/Es had hovered between 12 and 15 before briefly diving to high single-digit levels. IT stocks have experienced buoyancy over the past two trading sessions driven by optimism that weakening rupee would offer support to export realisations in the short term. However, the AI overhang is expected to remain in the medium term, thereby capping the upside for these stocks.