Due to increased US demand and the visibility of AI revenue, investor interest in Indian IT equities is returning, as evidenced by the Nifty IT index surging more than 6% in only one month. Though obstacles like visa restrictions still exist, optimism is returning despite previous poor performance.
Indian IT companies are attracting investors once more after years of poor performance. almost the past month, the Nifty IT index has increased by almost 6% because to stronger indications from the US demand climate, lessening currency concerns, and increased visibility on revenues driven by artificial intelligence. After a protracted period of cautious posture, these variables taken together have improved sentiment toward major technology exporters.
Instead of being sudden, the rally has been sustained. For the third straight month, the index has increased by more than 4% in December thus far. The outlook for Indian IT companies has been strengthened by the improvement in sentiment toward global technology stocks.
With the exception of one, every Nifty IT component has produced positive returns over the past month. With an increase of over 10%, L&T Technology was the biggest gainer, followed by Infosys, Tech Mahindra, and Wipro, all of which saw increases of nearly 9%. TCS, HCL Tech, and LTI MindTree all increased by five to six percent.
US demand and AI revenue visibility improve sentiment
Clearer disclosure on AI-driven revenues from both domestic and international technology leaders has been a major factor in the current performance of IT stocks. One of the clearest indications yet that enterprise AI investing is starting to result in actual revenue came from Accenture's most recent quarterly results.
For the September–November quarter, Accenture reported $18.7 billion in consolidated revenue and $2.2 billion in new advanced AI bookings. These figures are commonly seen as an early sign of demand trends that Indian IT companies may encounter during the October–December timeframe because Accenture uses a September–November fiscal quarter as its first quarter.
Expectations that AI-led transaction pipelines are progressing past early testing have been strengthened by these revelations. Clients are rapidly moving from "proof-of-concept projects to standalone AI implementations," as Nomura has seen; this change is essential for significant revenue growth.
The US macroenvironment, which is the biggest market for Indian IT services, has also provided support. Following the most recent interest rate reduction, sentiment on US demand strengthened, increasing hopes of a steady recovery in discretionary technology spending. The optimism surrounding deal activity and client spending has increased as a result.
But there are still difficulties. Even as IT equities exhibit resilience and make an effort to rebound from a protracted dull phase, visa restrictions and increasing H1-B visa fees continue to provide challenges for the industry.
Four difficult years and what's next
The last four years have been challenging for Indian IT equities. Global economic uncertainty caused growth to drastically drop after a robust pandemic-driven boom in 2020 and 2021. The Nifty IT index increased by about 60% in 2021 due to strong deal pipelines, cloud adoption, and emergency technology spending.
This trend changed in 2022, when the index dropped more than 26% due to clients cutting back on discretionary technology spending due to global inflation, aggressive rate hikes, and concerns about a recession. Despite advances of between 24% and 22% in 2023 and 2024, the index's recovery lacked confidence as markets struggled with early uncertainty surrounding AI deployment.
The Nifty IT index is currently down more than 10% in 2025, which is the second-worst performance in the industry during the previous ten years.
Both structural and cyclical issues have contributed to the underperformance. On the cyclical side, despite strong profitability, international clients, especially those in the US and Europe, have postponed significant transformation initiatives. Structurally speaking, productivity increases from automation, cloud computing, and artificial intelligence have decreased the need for labor, sustaining margins but constraining short-term revenue growth.
The Nifty IT index is currently down more than 10% in 2025, which is the second-worst performance in the industry during the previous ten years.
Both structural and cyclical issues have contributed to the underperformance. On the cyclical side, despite strong profitability, international clients, especially those in the US and Europe, have postponed significant transformation initiatives. Structurally speaking, productivity increases from automation, cloud computing, and artificial intelligence have decreased the need for labor, sustaining margins but constraining short-term revenue growth.
0 Comments