A recovery rally could be on the cards for Indian IT stocks, with market participants increasingly arguing that the recent sharp correction has been driven more by sentiment than fundamentals. Market expert Sandeep Sabharwal believes that pessimism around the sector, particularly concerns that artificial intelligence could severely impact traditional IT services, has been overstated.
“The software sector is a trading sector now, not a long-term sustainable wealth-generating sector,” Sabharwal said, adding that despite structural concerns, valuations have turned attractive after the recent downturn. “Many of these stocks are significantly beaten down. Valuations are cheap relative to the cash flows they generate.”
Created with AI. Errors are possibleAccording to him, the combination of lower valuations and improving global cues could trigger a near-term rebound. “There should be a rally. I would think 10–15 per cent rally in a majority of the stocks would not be ruled out,” he said, pointing to a pickup in U.S. technology stocks as an early signal that could spill over into Indian IT names.
Notably, the Nifty IT extended its rally on Tuesday, with the index gaining nearly 5 per to hit an intraday high of 31,290 mark. The Nifty IT index has staged a notable recovery in the near term, gaining 7.24 per cent over the past week and rising 5.87 per cent in the last one month, indicating renewed buying interest in the sector after a prolonged phase of weakness.
However, the medium-term trend remains muted. Over the past three months, the index has edged up just 2.66 per cent, reflecting a gradual and uneven recovery. The performance over a six-month period continues to show pressure, with the index still down 17.22 per cent, highlighting the extent of the earlier correction in IT stocks.
On a broader horizon, the index remains in negative territory, declining 18.58 per cent year-to-date and 16.15 per cent over the past year. Despite this, long-term returns remain positive, with gains of 5.97 per cent over three years and 15.36 per cent over five years.
Sabharwal also highlighted that the intense bearish narrative around IT may not fully reflect reality. “The negativity built in a manner where these companies are going to lose all their business, and nothing is going to be left. It’s going to be only AI. The reality is somewhere in the middle,” he said, suggesting that fears around AI disruption have likely been exaggerated.
Echoing a similar view from a technical perspective, Vaishali Parekh, Vice President – Technical Research at Prabhudas Lilladher, said the sector has begun to show signs of strength after a prolonged phase of weakness. “IT has been showing some momentum for some time.
We started with mid-cap stocks like Persistent and Coforge, but in the last few sessions, Infosys and TCS are technically very well placed,” she said. Parekh believes that the risk-reward equation is currently favourable for investors looking at short-term opportunities. “It’s worth getting into it. If this momentum continues, we can get good returns from these stocks. We are taking it as a trading bet right now,” she added.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
