After spending weeks under pressure, information technology (IT) stocks made a strong comeback. The Nifty IT index jumped around 3% during intraday trade, with every constituent trading in the green.
All the 10 constituents in the Nifty IT index were trading in the green in the intraday trade.
However, brokerage houses continue to believe that earnings growth and management commentary over the next few quarters will determine whether the recovery can sustain.
Nifty IT stocks shine as HCLTech leads the rally
The rally was broad-based, with all ten stocks in the Nifty IT index trading higher during intraday trade.
HCL Technologies emerged as the biggest gainer, surging more than 7% after announcing a strategic deal valued at nearly $1.14 billion with a Europe-headquartered Fortune Global 50 company.
Under the agreement, HCLTech will build an artificial intelligence-driven operating model to manage the client’s global digital workplace and enterprise network operations. The contract will run from July 2026 until December 2031, with an option to extend it for another five years.
Apart from HCLTech, Persistent Systems, Mphasis, Wipro, Tech Mahindra and Coforge gained between 2-3%. Tata Consultancy Services, Infosys, LTIMindtree and L&T Technology Services also traded with gains of more than 1%.
What triggered today’s rally?
The sector received support from improving global market sentiment after weaker-than-expected job creation data in the United States reduced concerns that the US Federal Reserve could raise interest rates again.
The sharp jump in HCLTech following its billion-dollar deal announcement further boosted sentiment across the sector.
Brokerages still see a challenging earnings season
According to Kotak Institutional Equities, the June quarter is likely to remain weak for most information technology companies.
The brokerage said, “We believe that 1QFY27 will be weak on revenues, impacted by the West Asia crisis and elevated productivity pass-throughs in managed services contracts.”
It added, “Most large companies will struggle to hit the midpoint of their FY2027 guidance.” The brokerage also believes artificial intelligence-led productivity gains are increasing pricing pressure across the industry, noting that it has “cut revenue estimates by around 0-1% and fair values by up to 21%.”
Kotak expects challenger companies to continue outperforming larger incumbents, with Coforge, Hexaware and Indegene among its preferred names.
Motilal Oswal also expects demand to remain under pressure. The brokerage said, “We expect demand commentary to stay soft in Q1FY27, as macro, AI and geopolitical overhangs continue to weigh on discretionary spending and decision-making cycles.”
Motilal Oswal in its latest report added that although valuations have become cheaper after the correction, “returns are likely to remain capped until deflationary pressures ease and AI-led implementation use cases begin to scale.”
JM Financial echoed a similar view, saying “Q1FY27 is likely to be weaker than initially anticipated,” while adding that investors will closely watch company guidance for the rest of the financial year.
The brokerage also warned that “sentiment may remain soft if earnings downgrade continues versus expectation,” and therefore maintains “a cautious stance on the sector.”
Can the recovery continue?
According to brokerage houses, the real test lies ahead.
Quarterly earnings, management outlook, client spending trends and the impact of artificial intelligence on pricing will determine whether this rebound develops into a sustained recovery or remains a short-term bounce.
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