₹3.87 Lakh Crore Surge in IT Stocks Amid FII Buying

In October, the Indian IT sector experienced a remarkable recovery, with a surge of approximately ₹3.87 lakh crore in market capitalization. This rebound has been fueled by a notable influx of foreign investment, which saw foreign portfolio investors purchasing ₹6,463 crore worth of IT stocks during the third quarter. The combination of these factors has led many to speculate whether a genuine turnaround in the IT sector is underway or if this is merely a temporary valuation-driven bounce.

The rally has been widespread across major technology firms, with Tata Consultancy Services (TCS) leading the charge, witnessing a 23% increase in its stock price. Other significant gainers include Tech Mahindra, which rose by 20%, Mphasis and Wipro, both up by 19%, and Infosys and HCL Technologies, which saw increases of 17% and 16%, respectively. This broad-based recovery has elevated the combined market capitalization of Nifty IT stocks from ₹22.01 lakh crore to ₹25.88 lakh crore.

Despite the positive momentum, not all companies shared in the gains. Oracle Financial Services Software saw a decline of about 5%. The selective nature of foreign investment is evident, with foreign ownership in Wipro increasing from 8.85% in June to 9.46% in September, and Infosys seeing a rise from 27.09% to 27.44%. This suggests a cautious yet strategic interest from foreign investors, rather than a full-scale return to the sector.

The implications of this rally are significant for the broader market and investors. The Nifty IT index has outperformed the Nifty 50 by 12 percentage points since February, with much of this outperformance occurring in October. Analysts from Jefferies attribute this rally to a re-evaluation of price-to-earnings ratios, despite the lack of substantial revenue growth or earnings per share upgrades. They note that the current market prices imply modest growth expectations for large IT firms, suggesting that while the sentiment may be improving, the underlying fundamentals remain a concern.

Looking ahead, the outlook for the IT sector remains cautious. Analysts predict that FY27 could be particularly challenging, with growth expected to remain subdued. While there is optimism about a potential recovery in FY28 and FY29, growth rates are anticipated to be modest. As competition intensifies and the impact of AI on profitability becomes clearer, the market appears to be pricing in a selective recovery rather than a broad-based turnaround in the IT sector.