After a prolonged period of sluggish performance, shares of Indian information technology companies are back in the spotlight, attracting renewed interest from investors. The sector's benchmark, the Nifty IT index, has climbed more than 6% in the past one month, marking a significant shift in sentiment. This upturn is fueled by three converging factors: clearer signs of revenue generation from artificial intelligence projects, an improving demand outlook in the crucial United States market, and reduced pressure from currency fluctuations.
Steady Gains and Broad-Based Participation
The recovery in IT stocks has been characterized by a steady ascent rather than a sudden spike. The index has advanced over 4% in December 2024 alone, securing its third straight month of positive returns. This positive trend aligns with a global improvement in sentiment toward technology stocks, which has bolstered the prospects for Indian IT exporters.
The rally has been widespread. In the last month, all but one of the Nifty IT index constituents have delivered positive returns to investors. Leading the pack was L&T Technology Services, which surged nearly 10%. Industry giants Infosys, Tech Mahindra, and Wipro followed closely, each gaining approximately 9%. Other major players like LTI MindTree, Tata Consultancy Services (TCS), and HCL Technologies also posted healthy gains of between 5% and 6%.
Key Drivers: AI Revenue Clarity and US Macro Signals
A major catalyst for this resurgence is the increasing transparency around revenues driven by artificial intelligence. Global technology consulting firm Accenture provided a concrete signal in its latest quarterly results, indicating that enterprise spending on AI is starting to materialize into real income. For its September-November quarter (Q1 of its fiscal), Accenture reported consolidated revenue of $18.7 billion and disclosed advanced AI new bookings worth $2.2 billion.
Since Accenture's fiscal calendar is closely watched as a leading indicator, these numbers suggest a similar demand trend for Indian IT firms in their October-December quarter. Analysts at Nomura highlight that client projects are evolving from mere proof-of-concept stages to standalone AI implementations, a critical step for substantial revenue contribution.
Further support has emerged from the macro environment in the United States, the largest market for Indian IT services. The latest interest rate cut has improved sentiment around US demand, raising hopes for a gradual recovery in discretionary technology spending by clients. This has added optimism regarding future deal pipelines and budget allocations.
Overcoming a Tough Phase and The Road Ahead
The current rally comes after a challenging four-year period for Indian IT stocks. Following a spectacular pandemic-driven rally in 2020 and 2021, where the Nifty IT index jumped almost 60%, growth stalled due to global economic headwinds. The index plunged over 26% in 2022 as inflation, rate hikes, and recession fears led to cuts in tech spending.
Although it rebounded in 2023 and 2024 with gains of around 24% and 22% respectively, the recovery lacked strong conviction amid early uncertainties about AI adoption. So far in 2025, the Nifty IT index is down more than 10%, making it one of the sector's weakest annual performances in the last decade. This underperformance stemmed from both cyclical delays in large client projects and structural shifts like automation reducing short-term revenue growth.
However, the narrative is now changing. Nomura notes that nearly every major Indian IT services company is ramping up AI investments across internal operations and client solutions. TCS has already reported annualized AI-related revenue of ₹12,500 crore, calling AI a "civilizational change" for businesses.
Looking forward to 2026, the outlook appears more balanced. Nomura forecasts roughly 4.5% revenue growth for large IT firms in FY27, with mid-sized companies growing faster. HSBC believes 4–6% growth is achievable if global confidence strengthens. While some firms like Jefferies remain cautious, the powerful combination of AI adoption, improving demand signals, and robust cash flows is steadily reshaping the investment story for Indian IT stocks.
Disclaimer: The views and recommendations mentioned are those of individual analysts or broking firms. Investors are advised to consult certified experts before making any investment decisions.
