India’s information‑technology (IT) index posted a dramatic rebound this week, with Tech Mahindra posting the biggest jump of more than 16% and Wipro gaining 13%. Tata Consultancy Services (TCS), Infosys and HCL Technologies each added roughly 12% to their share prices. The surge follows a period earlier in the year when foreign institutional investors and other market participants withdrew from the sector as AI‑linked stocks captured attention amid concerns about slowing demand and earnings.
Factors that turned the tide
The rally can be traced to four inter‑related developments. First, the broader AI market experienced a sharp correction. U.S. stocks tied to artificial‑intelligence themes fell on Thursday, extending a global sell‑off that has erased more than $1 trillion in market value from 20 of the world’s most valuable AI and semiconductor companies this week. Analysts cited worries about rising interest rates, tighter AI financing and intensifying competition as the primary drivers of the pull‑back.
Adding to the pressure, OpenAI revised its revenue outlook for September. The company told investors that its annualised revenue for the month was “nearly $50 billion,” a figure notably lower than the earlier guidance that suggested a run‑rate approaching $70 billion. The downgrade, reported by Reuters, underscored the volatility in expectations around AI‑driven growth.
Second, Indian IT firms delivered earnings that exceeded market expectations. TCS, the country’s largest IT services player, reported a 15% year‑on‑year increase in consolidated net profit, rising to Rs 13,884 crore for the second quarter compared with Rs 12,075 crore a year earlier. The board also announced a second interim dividend of Rs 12 per share for the financial year 2026‑27, reinforcing confidence among shareholders.
Third, global consulting giant Accenture offered a reassuring outlook at its recent investor day. Chief Executive Officer Julie Sweet emphasized that new technologies, including AI, are not expected to pose a major threat to the consulting business, aiming to allay fears of sector‑wide disruption.
Finally, concerns about the cost of capital for AI projects surfaced this week. Broadcom’s chief executive Hock Tan warned that financing constraints could become a bigger bottleneck for AI expansion than traditional shortages of semiconductors, memory chips or electricity. Intel’s CEO Lip‑Bu Tan echoed the sentiment, noting that rising capital costs require companies heavily investing in AI to demonstrate clear returns.
Analyst perspectives on the recovery
Market participants have interpreted the combination of stronger earnings and a softening AI hype as a catalyst for the IT index’s bounce. VK Vijayakumar, chief investment strategist at Geojit Investments, said that “strong results from major IT companies and positive management commentary had triggered a sharp recovery in the IT index, helping the Nifty remain resilient.” He added that the improvement could provide “fundamental support to the broader market.”
Axis Securities, while noting the upside, remains cautious. The firm highlighted that “the pace of global AI adoption over the next 2‑3 years remains a key concern for earnings growth and valuations” for the Indian IT sector.
Krishna Sanghavi, chief investment officer for equity at Mahindra Manulife Mutual Fund, warned that “if questions arise globally around the commercial viability of AI, potentially slowing its rollout, market concerns over Indian IT companies could ease.”
Gaurav Garg, head of research at Lemonn Market desk, offered a balanced view: “The sector may remain positive in the near term, supported by improving sentiment and buying interest following HCLTech’s results, but after a sharp rally, some profit‑booking and volatility cannot be ruled out.”
Outside India, the AI‑related sell‑off also impacted other markets. South Korea’s technology‑heavy index fell more than 6% on Tuesday as the decline in AI‑linked equities deepened, illustrating the global reach of the correction.
Outlook and potential risks
While the recent surge has restored optimism, analysts caution that the sector’s trajectory will hinge on several variables. The sustainability of AI‑driven investment, the ability of firms to translate heavy spending into profitable outcomes, and the broader macro‑economic environment—including interest‑rate dynamics—remain central to future performance.
Investors will be watching upcoming earnings releases and any further guidance from major players such as Accenture, Broadcom and Intel. A continued easing of AI‑related valuation pressures could reinforce the current positive sentiment, whereas renewed doubts about AI’s commercial viability might reignite the outflows that plagued the sector earlier in the year.
In the short term, the IT index’s recent gains appear to have provided a cushion for the broader Indian market, with the Nifty index showing resilience amid the volatility. Whether this resilience can be maintained will depend on how quickly the sector can navigate the twin challenges of capital intensity and competitive pressure while delivering consistent earnings growth.
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