Mumbai: Indian IT stocks surged on Tuesday, with the Nifty IT index jumping 5.2%, its biggest single-day gain in about 17 months, as HCL Technologies' September quarter earnings reassured investors about demand for software services. A selloff in Asian semiconductor stocks amid concerns over the durability of the heavy investments in AI also lifted sentiment in the sector. The software services industry is considered among the biggest casualties of AI adoption.
All 10 constituents of the Nifty IT index ended higher. HCL Technologies led the gains, surging 8.42%, followed by Tata Consultancy Services at 6.8%, Coforge at 4.46% and Infosys at 4.13%. The rally helped the Nifty 50 advance 1.6% to 22,721.95, while the Sensex rose 1.54% to close at 73,033.78.
"For the Indian IT sector, the pace of global AI adoption over the next 2-3 years remains a key concern for earnings growth and valuations," said Krishna Sanghavi, CIO Equity, Mahindra Manulife Mutual Fund. "However, if questions arise globally around the commercial viability of AI, potentially slowing its rollout, market concerns over Indian IT companies could ease," he said.
HCL's second quarter net profit rose 21.2% year-on-year, beating analyst expectations. The earnings performance eased investor sentiment, which has been weighed down by concerns about AI-led disruption and slowing growth in traditional software services. A stronger dollar provided additional support to Indian IT exporters, which earn a substantial share of their revenues in foreign currencies. The Nifty IT Index is still down over 21% so far against the 13% decline in the Nifty.
The Nifty IT index also broke above the 27,614-28,755 range in which it had traded between September 24 and October 12, according to Sudeep Shah, head - Technical and Derivatives Research at SBI Securities. "The RSI is trending higher and approaching the 60 mark, signalling renewed bullish momentum. The zone of 28,600-28,500 is likely to act as immediate support, and the index may extend its pullback as long as it sustains above this zone," Shah said.
"The sector may remain positive in the near term, supported by improving sentiment and buying interest following HCLTech's results, but after a sharp single-day rally, some profit-booking and volatility cannot be ruled out," said Gaurav Garg, head-research, Lemonn. Garg advised investors against chasing the rally, recommending a focus on companies with strong earnings visibility, healthy deal conversion and stable margins.
