Shares of India’s largest IT service providers have been under sustained pressure, but analysts now see reasons for cautious optimism. A weaker rupee, rising AI-linked deals, and potential US interest rate cuts are creating conditions that could trigger a revival in the sector.
Analysts Turn Bullish
Nuvama Institutional Equities on 1 September shifted its stance from “underweight” to “overweight,” recommending investors increase their exposure to IT stocks. The firm highlighted how a weaker Indian rupee can soften the blow of slowing global demand, since IT companies derive more than half their revenues from the US.
Other brokerages—Axis Capital, Antique Stock Broking Ltd, JM Financial, and HDFC Securities—have also become more positive on IT, a sector they had approached with caution earlier in the year.
Currency Tailwind
The rupee has fallen nearly 3% against the US dollar in 2025, trading at 88.03 on 8 September, compared with around 85 in January. The depreciation benefits IT exporters by inflating dollar-denominated earnings when converted back to rupees. This is seen as a natural hedge against demand headwinds.
AI-Led Opportunities
A major shift lies in the rising importance of artificial intelligence. Brokerages note that firms providing advanced, AI-led business transformation and analytics are better placed to win larger, strategic contracts compared to those focused on traditional IT infrastructure.
Antique Stock Broking analysts suggest that the medium to long-term outlook favors companies that embrace AI-driven applications, data engineering, and analytics. Such services could reignite discretionary tech spending, particularly as clients look beyond cloud migration toward transformative projects.
Industry experts echo this view, with Constellation Research’s R. Wang noting that AI could enable higher revenue per employee, reducing dependency on headcount-based growth.
Waiting for Discretionary Spend
HDFC Securities believes discretionary spending may return in the second half of FY25, especially from large banks and healthcare clients that paused IT investments amid global economic uncertainty. If geopolitical tensions and tariff concerns ease, analysts expect companies to loosen budgets for digital transformation.
JM Financial has revised its stance from bearish to neutral, citing clearer tariff structures and the likelihood of three Fed rate cuts in 2025. Cheaper borrowing costs in the US would encourage companies to allocate more towards technology upgrades.
Investors Still Wary
Despite the more optimistic brokerage calls, investors remain skeptical. India’s top IT firms have struggled to maintain growth beyond 5% in the past two years, with Wipro and Tech Mahindra even reporting revenue declines in FY25.
Stock prices reflect this weakness. Year-to-date, TCS, Infosys, and HCLTech shares have dropped around 26%, while Wipro and Tech Mahindra are down 19% and 14%, respectively. The Nifty IT index is down about 21% this year, in sharp contrast to the Nifty 50, which has gained more than 4.5%.
Balancing Risks and Hopes
The IT sector stands at a crossroads. On one hand, a depreciating rupee, AI-led projects, and Fed rate cuts could lift sentiment and earnings. On the other, macroeconomic uncertainties, geopolitical risks, and tariff disputes keep caution high.
For now, the mood is shifting from outright pessimism to cautious optimism. The coming quarters will reveal whether AI adoption and improved global conditions are strong enough to fuel a sustained recovery.
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Disclaimer
This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.