IT stocks rebound 2.8% as brokerages downplay AI disruption fears

Nifty IT index snaps six-day losing streak as brokerages cite stable demand, limited pricing pressure and resilient outlook despite concerns over generative AI

Snapping a six-day losing streak, information technology (IT) stocks staged a rebound on Wednesday, with the Nifty IT rising 2.8 per cent to end at 29,559, as brokerages sought to allay concerns over disruption from the latest artificial intelligence (AI) tools. All 10 constituents of the index ended in green.

 

The jump came a day after the index had closed at its lowest level in nearly three years. Over the previous six sessions, Nifty IT had declined 4.65 per cent.

 

The recovery was led by renewed optimism after global brokerage CLSA said there was no evidence of increased pricing pressure in renewal contracts for Indian IT services firms, following the launch of new AI tools by Anthropic and OpenAI.

 

“In our discussions with TCS, Infosys, HCLTech and Wipro… we find no evidence of increased deflation in renewal contracts due to the latest AI tools,” CLSA said in a note. Demand trends across key verticals remain largely intact, with banking, financial services and insurance (BFSI) continuing to see tailwinds, it added. 

 

While some companies flagged delays in client decision-making — partly due to enterprises evaluating the potential of new AI tools and ongoing geopolitical tensions in West Asia — deal pipelines remain strong, CLSA noted.

 

Direct exposure of Indian IT firms to West Asia remains in low single digits, with the broader impact dependent on macroeconomic variables, such as inflation, interest rates and growth, the brokerage pointed out.

 

Separately, HDFC Securities said the recent sharp correction in IT stocks — about 25 per cent over the past three months — had been driven by fears that generative AI platforms could disrupt traditional IT services and software models.

 

However, it argued that the complexity of deploying such technologies in large, regulated enterprise environments could limit near-term disruption. “Deploying these unproven technologies in complex ‘brownfield’ regulatory landscapes is far more challenging than the hype implies,” the brokerage said.

 

HDFC Securities estimates that AI-led pricing pressure may rise modestly to 6-7 per cent, up from earlier expectations of around 4 per cent, but sees this being offset over time by new deal wins. It maintained that the IT services model remained resilient, with generative AI expected to unlock a sizable opportunity over the long term.

 

The brokerage also pointed out that valuations have corrected to pre-Covid levels, with tier-I IT firms now trading at a discount to their 10-year average multiples. Current market pricing implies relatively modest long-term growth expectations, suggesting limited downside from present levels.