The sentiment around information technology (IT) stocks has undergone a dramatic shift in FY2025. It has moved from widespread pessimism to emerging optimism driven by hopes of recovery. Accordingly, it came as no surprise that three IT giants — namely, Infosys, Tata Consultancy Services (TCS) and Tech Mahindra — have emerged as top contenders on the list of stocks with the most upgrades this fiscal.
For Infosys, "buy" calls increased from 20 a year ago to 32 as of November. Similarly, "hold" and "sell" ratings dropped to 10 and six — down from 16 and eight — respectively, data from Moneycontrol's analyst call tracker showed.
Tech Mahindra followed a similar trend, with "buy" recommendations climbing to 22 in November from 14 last year. Concurrently, "sell" calls decreased to 14 from 17, and "hold" calls dipped to 10 from 11.
For TCS too, "sell" calls reduced to seven from nine a year ago, while "buy" ratings surged to 31 from the previous 22. "Hold" calls for the stock also came down to 11 from the earlier 13.
Hopes of IT recovery
The turnaround in analysts ratings for IT stocks has largely been driven by hopes of a recovery in the sector's spending. It's a resurgence in deals from the banking, financial services and insurance (BFSI) segment and easing interest rates. Most analysts believe that the shallow downturn in the IT space seems to be behind and the sector is poised for recovery.
Management commentaries for the second quarter (Q2) of FY25 have also hinted towards green shoots of recovery, further sparking optimism on the Street. Analysts at Axis Securities also showed confidence in IT players after most companies in the sector delivered improved performance in FY25 so far, which according to the brokerage, indicates a revision in demand and stabilisation of uncertainties in major global economies. This sentiment echoed across the industry with deal wins and the adoption of emerging technologies like artificial intelligence (AI) and Internet of Things (IoT) driving the sector's rebound.
BFSI innovation, US Federal Reserve rate cuts driving sentiment
Anirudh Garg, Managing Partner at Invasset PMS, anticipates the IT sector to benefit from structural trends such as AI, automation, and digital transformation, further enhancing its potential for recovery.
Brokerage firm Kotak Institutional Equities (KIE) also highlighted in its recent report that cloud, data, and AI were set to lead the charge for a turnaround in the IT sector causing the banking and financial services (BFS) vertical's revenue to normalise by FY26. "The key driver is a fresh wave of discretionary spending from US banking and financial services (BFS) firms," KIE wrote.
Building on this momentum, the IT sector has also seen a long-awaited revival in headcount growth, signalling renewed confidence in its recovery. Hiring in Indian IT is more than just numbers. It's a testament to the sector's optimism. With Q2 results and management commentaries pointing to strong future demand, industry giants have resumed recruitment, focusing on both seasoned professionals and fresh talent.
Besides these factors, improving macroeconomic concerns in the US — a major market for IT companies — along with the start of the rate cut cycle by the Federal Reserve are also seen as key tailwinds for the sector. The improved macro scenario, easing interest rate environment and a pickup in AI technologies are cited by analysts as the key triggers that have changed the sentiment for IT players within a year.
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