IT stocks rebound after ₹4.85 trillion sell-off: Time to buy?
What's the story
Indian IT stocks are showing signs of recovery after a massive market correction that saw the Nifty IT index lose 15% since Anthropic's February 3 announcement of new AI tools. The sell-off wiped out ₹4.85 lakh crore in market capitalization from Nifty IT firms. However, today, the index gained 2% to reach 33,496 points. All constituents of the index joined this rally with Infosys shares emerging as today's top gainer with a 4% rise.
Market recovery
IT stocks bounce back after massive sell-off
The recent tech rout has created a buying opportunity for bullish investors. The Nifty IT index's constituents, including Tata Consultancy Services (TCS), HCL Technologies, Wipro and Tech Mahindra, all gained over 1% each after falling 12-16% in just nine trading sessions. TCS suffered the biggest loss among all IT stocks at ₹1,87,670 crore in terms of market capitalization during this period. Infosys followed closely with a notional loss of ₹1,17,747 crore.
Sector outlook
Analysts divided on outlook for IT sector
As IT stocks rebound, analysts are debating whether the worst is over for the sector. HSBC Holdings Plc and JPMorgan Chase & Co. believe concerns may be overdone as Indian IT firms could benefit from more customers needing help integrating AI into their operations. Harshal Dasani of INVAsset PMS said that while large-cap IT companies reported revenue growth in the 2-4% range for FY25, AI-led transformation and cloud migration offer incremental revenue pools in the medium term.
Recovery prediction
AI-led disruption and Indian IT's role
Market veteran Sunil Subramaniam also believes that the worst of the fall is already behind us. He thinks booking profits now will only convert paper loss into cash loss. Subramaniam said that AI-led disruption was overblown by the stock market reaction and Indian IT companies will play a major role in this revolution as they adapt their business models accordingly.
Valuation forecast
ICICI Securities warns of further derating in valuation multiples
Not everyone is convinced of the sector's recovery. Amid prolonged subdued growth and AI-driven capital shifts toward infrastructure and software, ICICI Securities expects further derating in valuation multiples for IT services stocks. The brokerage noted that large-cap IT is trading at 18x FY27E EPS, well above historical troughs seen during past global financial crises or initial COVID-19 outbreaks.