NIFTY IT jumps 8% in 3 sessions; what is driving the rally after sharp correction?

The NIFTY IT index on Tuesday jumped as much as 4.14% to the day's high of 29,566.15 levels, with all ten constituents in the green.

How individual stocks are performing

When last seen, Tata Consultancy Services Limited (TCS) was trading nearly 3% higher at ₹2,350.60 apiece on the NSE, while Infosys Ltd was up over 4% at ₹1,191.20. Wipro shares were up over 2% at ₹196.39 apiece on the NSE, while HCL Technologies traded 3.43% higher at ₹1,185.90. Tech Mahindra was up nearly 4% at ₹1,484.50.

Among smaller firms, Coforge was up over 4% at ₹1,405.70, while Persistent Systems was trading nearly 3.8% higher at ₹5,130.

The rally in the NIFTY IT index could be driven by a combination of global cues, currency movement, and bargain buying after the recent sharp correction in IT stocks.

Weakening rupee

A softer Indian rupee against the US dollar is typically positive for IT companies because they earn a significant portion of their revenue in dollars. Rupee depreciation improves earnings realisations and supports margins for companies such as Infosys, Tata Consultancy Services, HCL Technologies, and Wipro.

Positive global tech sentiment

Continued strength in US technology stocks and software companies has improved investor sentiment toward the broader IT sector globally. Markets are interpreting the rally in Wall Street tech shares as a sign that enterprise technology spending remains resilient.

AI optimism

Investors are increasingly betting that Indian IT firms could benefit from rising global spending on artificial intelligence, cloud migration, cybersecurity, and digital transformation. Although Indian IT firms are not frontline AI product companies, they are aggressively investing in AI-led services and partnerships.

Moreover, analysts note that the impact of AI on the IT sector is misunderstood.

For instance, in a recent interview with Upstox News, Pankaj Murarka, Founder & CIO, Renaissance Investment Managers, noted that the impact of AI on the IT sector is “misunderstood,” and while AI is impacting the current businesses of IT companies, it is also creating new opportunities.

"AI will definitely change the industry, but Indian IT companies have adapted well to every major tech shift in the past," the expert said.

Valuation comfort after correction

Many frontline IT stocks had corrected sharply over the past few months due to weak guidance and macro concerns. The recent decline has made valuations relatively attractive, prompting bargain hunting by investors.

Short covering

Since the IT pack had been under persistent selling pressure, the recent rebound may also be getting amplified by short covering from traders betting against the sector, note analysts.

Short covering in IT stocks means traders who had earlier bet on the sector’s decline are now buying back shares to close their positions, especially after the recent rally in the IT pack.

TCS rolls out annual salary hikes of 5% on average

Analysts believe the limited wage hike announced by Tata Consultancy Services has improved sentiment toward the IT sector, as it signals that companies are focusing on cost optimisation measures to protect margins amid an uncertain demand environment. The move is being viewed as positive for the broader IT pack, with investors expecting improved profitability and better cost discipline across the sector.