Indian IT stocks may stage technical rebound after selloff creates value

The correction in IT stocks has been driven by mounting concerns among investors over the potential impact of AI on the sector's growth outlook

India's top software companies could see a rebound in momentum after nearly ₹5 trillion was wiped off their combined market capitalisation this year, with the recent selloff "signalling undervaluation," according to analysts.

 

The Nifty IT index saw its best session since February 3 this year, after which the index saw a nearly 15 per cent plunge amid growing pressure from artificial intelligence (AI). During the selloff, Coforge led the decline with a 16 per cent drop, followed by Infosys and Tata Consultancy Services (TCS), which fell nearly 14 per cent each.

 

The correction has been driven by mounting concerns among investors over the potential impact of AI on the sector’s growth outlook, with the launch of a new AI tool by startup Anthropic further clouding the sentiment. 

 

 

However, on Tuesday, the Nifty IT gauge rose over 2.5 per cent, led by gains in Infosys, rising over 4 per cent. Infosys shares rose a day after it announced a strategic partnership with Anthropic. At its investor day, Nandan Nilekani of Infosys said that he believes AI is not an opportunity risk, but an execution risk.  

Nifty IT's current price to earnings (P/E) ratio stands at 23x, below its 5-year median of 29.6 and 10-year average of 24.5, signalling undervaluation after recent market corrections, according to analysts. For the first time since May 2021, the P/E of the Nifty IT index has fallen below that of the benchmark Nifty50 index, according to Bloomberg data. 

 

This makes IT stocks attractive for value investors, especially with stable dividends and potential recovery from global rate cuts, Anuj Badjate, managing director, Badjate Stock Shares Pvt Ltd, said. "However, muted growth outlook warrants caution; selective buying in leaders like Infosys and HCL is advisable."

 

"The correction reflects extreme pessimism driven by concerns around cannibalisation, while largely ignoring the potential for new opportunities for Indian IT service providers that have historically succeeded as integrators and enablers in every major technology evolution," said Sandeep Gogia, sector lead – tech & digital at Equirus Capital.

 

The recent fall in IT services and SaaS stocks appears to be driven by a narrative that marks down terminal growth rate assumptions, Investec said in a report. "We argue IT services firms should benefit from legacy code modernisation, migration of legacy SaaS applications, building AI foundation layers for enterprises and physical AI, among other opportunities."

Technical rebound ahead? 

Accoridng to technical charts, the Nifty IT index has formed an triple-bottom formation around the 31,500 zone. If this support is defended, as seen in earlier instances, the index could witness a pullback towards the 50 per cent retracement of the recent decline, placed near 35,500 levels, Nilesh Jain, Head Derivatives and Technical Research at Centrum Broking, said. 

 

The daily RSI is currently in extreme oversold territory, hovering around 25, which supports the possibility of a technical rebound, Jain said. "However, a decisive break below 31,500 would signal a structural breakdown, potentially dragging the index towards 28,000 levels."

 

Anuj Badjate adds that the Indian IT firms face mid-single-digit revenue growth in 2026, matching 2025 levels amid flat global macros and sluggish discretionary spending in key markets like the US and Europe.  Firms are adapting via AI integration for productivity, but near-term hiring remains selective with stable enterprise demand, he said.   ========== 

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