Synopsis

On Tuesday, information technology stocks saw a notable recovery as investor confidence returned, easing worries surrounding artificial intelligence disruptions. The Nifty IT index performed robustly, surpassing other sector indices. Analysts suggest that AI holds promising prospects for Indian IT firms, yet technical experts express caution regarding the sector's short-term forecasts.

Mumbai: Information technology stocks staged a strong rebound on Tuesday, with investors returning to the sector as concerns over the pace of artificial intelligence development eased fears of a sharp disruption to traditional IT services.

Intraday, the Nifty IT index rallied nearly 5% before paring some gains to end 2.19% higher, making it the best-performing sectoral index. In contrast, the Nifty 50 closed 1.19% lower. HCL Tech was the biggest gainer, rising 4%, followed by Infosys, which gained 3.7%. Mphasis rose 3.6%, while Tata Consultancy Services advanced 2.2%.

ET Bureau

"The sharp rebound in Indian IT stocks reflects easing concerns over immediate AI-led disruption, as enterprises increasingly move from experimentation to scaled deployment," said Ajit Mishra, SVP Research at Religare Broking.

He said AI was creating opportunities across consulting, cloud, data, application modernisation and managed services rather than simply replacing traditional IT services. Indian IT companies, with their global client relationships, scale and domain expertise, are well placed to benefit from this demand, he added.

Read more: Sebi plans shorter disaster recovery drills, stronger backup rules for exchanges

"While safety concerns and responsible AI deployment may temper the pace of adoption, they also provide companies with time to reposition portfolios and monetise emerging opportunities. The transition from AI-led uncertainty to sustainable growth and earnings recovery will be key for the sector's outlook," according to Mishra.

IT stocks have been among the major laggards last year as investors were worried that newer AI tools could reduce demand for conventional software development and outsourcing services. The latest easing in concerns over AI disruption has given investors some comfort that traditional IT companies may have more time to adapt to the technology.

From a technical perspective, analysts remained cautious. Nifty IT index faced resistance around its 200-day exponential moving average several times in late July and early August before breaking below its 31,955-29,820 range and moving lower.

Read more: Prashant Jain’s 3P India among anchors as Hero Motors raises Rs 300 crore ahead of IPO

"The price action is not yet strong enough to signal a reversal," said Sudeep Shah, vice-president - technical and derivatives research at SBI Securities. The index formed a small-bodied candle with a noticeable upper wick, showing that it struggled to hold on to higher levels. It also continues to trade below key moving averages, while the MACD remains below the zero line, indicating that momentum has not yet turned decisively positive, he said.

...moreless

...moreless