Ltd shares surged nearly 6 per cent on Thursday, leading a sharp rebound in information technology stocks as investors lapped up beaten-down counters after a recent sell-off.
The Nifty IT index climbed 4.5 per cent to emerge as the top-performing sector, snapping a four-session losing streak despite continued weakness in global technology stocks and lingering concerns over discretionary technology spending, macroeconomic uncertainty and the long-term impact of artificial intelligence on traditional IT services business models.
Infosys traded at ₹1,038.50 on the NSE at 12.09 pm after touching an intraday high of ₹1,040.60, up from its previous close of ₹985.30. The stock had hit a fresh 52-week low of ₹982.40 in the previous trading session before staging the recovery.
The Nifty IT index advanced 4.5 per cent to 26,946.35, with all constituents posting gains. Coforge, Mphasis, Infosys, Persistent Systems and HCLTech led the rally with gains of up to 6 per cent.
Motilal Oswal expects weak demand environment to persist
According to Motilal Oswal, demand is likely to remain soft in the first quarter of FY27 as macroeconomic challenges, artificial intelligence-related disruptions and geopolitical uncertainties continue to weigh on discretionary spending and enterprise decision-making cycles.
The brokerage expects tepid q-o-q growth across its IT coverage universe in Q1FY27, with the subdued demand environment likely to extend into Q2FY27. It said the first half of FY27 is tracking below the run rate required to sustain the upper end of companies’ full-year guidance, making it increasingly difficult for companies to achieve those targets through second-half performance alone.
As a result, Motilal Oswal expects companies to lower the upper end of their FY27 guidance ranges. It expects Infosys to reduce the upper end of its FY27 revenue growth guidance by 50 basis points, while HCLTech could trim the upper end of its services growth guidance by 100 basis points.
The brokerage added that a sustained rerating of IT stocks would require evidence of improving demand, stabilising revenue growth and clear signs that AI-led opportunities are beginning to offset productivity-related headwinds.
Valuations attractive but upside may remain capped
Motilal Oswal said valuations have corrected meaningfully, with Tier-I IT companies now trading around 30-40 per cent below their 10-year and five-year average valuation multiples.
It noted that TCS and Infosys are trading around minus one standard deviation price-to-earnings levels and nearly 46 per cent and 39 per cent below their respective 10-year average valuation multiples. The brokerage said it has reduced target valuation multiples by around 15-20 per cent across most of its coverage to reflect a slower growth outlook, rising uncertainty around AI-led productivity and continuing geopolitical overhang.
While valuations appear inexpensive, the brokerage believes returns are likely to remain capped until deflationary pressures ease and AI-led implementation use cases begin to scale.
The rebound in domestic IT stocks came despite weak global technology market performance.
US equities ended marginally lower on Wednesday as technology stocks remained under pressure. The Philadelphia Semiconductor Index slumped 6.3 per cent amid concerns over elevated valuations and heavy artificial intelligence-related capital expenditure. An 8.8 per cent rally in Meta Platforms helped limit losses on Wall Street, but semiconductor stocks continued to witness selling pressure.
Asian technology shares also traded lower.