Market at lifetime high but IT index down 19% from peak: Sector is ripe for a turnaround, say analysts; here's why

What lies ahead for IT stocks?

Indian stock markets have recently hit fresh lifetime highs after 14 months, but heavyweight IT stocks are still far away from their record peaks. Some analysts have, however, suggested that the sectoral stocks may soon see a rise, citing several key reasons.

Nifty IT index closed 0.11 percent lower at 37,405.50 on Friday. The sectoral index is more than 18.84 percent lower than its 52-week high of 46,088.9, which it had hit in December last year. While Nifty 50 has gained more than 10 percent in 2025 so far, the IT index fell around 14 percent during the same period.

What led to a downturn in IT stocks?

This was driven by several factors. US President Donald Trump imposed harsh tariffs on Indian and other imports to the country, which pushed the Indian IT stocks lower on expectations that discretionary spending in US will reduce following the move.

Additionally, Trump hiked fees for H-1B visas. The constant tussle between the US President and Federal Reserve chief Jerome Powell also put pressure on the shares of the companies which derive a major portion of their revenue from the US economy.

"The emergence of GCC centers as companies insource critical technology solutions, together with hyperscalers like Amazon and Google providing value-added services, is reducing the technology pie that tech companies can participate in," added Shravan Shetty, Managing Director, Primus Partners. This may have also led to a decline in the stocks.

Despite the previous downturn, these stocks have seen some rise recently. Heavyweight Infosys shares have gained around 4 percent in the past one month, while Wipro and TCS shares rose around 3 percent each during the time. HCLTech shares jumped nearly 7 percent during the same time, while Tech Mahindra shares rose around 5 percent.

Here's why analysts feel the IT stocks may be up for a turnaround:

Likely Fed rate cut:

Despite initial expectations of a no rate cut, a higher probability of a December rate cut by the US Federal Reserve has been boosting global markets. According to a Bloomberg report, Kevin Hassett, who is currently the White House National Economic Council Director, was being considered as the next Fed chairperson. The possibility of Trump's close aide being the next Fed chief further boosted the expectations of more rate cuts

New York Fed President John Williams, a permanent voter on rate policy and vice chair of the rate-setting Federal Open Market Committee, earlier said that interest rates can fall "in the near term".

"I view monetary policy as being modestly restrictive...Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral," Williams said. Investors now put a nearly 60 percent chance of a 25 basis point cut at the U.S. central bank's December meeting, reversing what had been strong conviction that the Fed would pause due to concerns about inflation.

A rate cut by the Federal Reserve will likely increase discretionary spending in the US, which in turn benefits IT stocks.

Anti-AI play:

Earlier this month, SoftBank sold stake worth $5.8 billion in Nvidia, igniting fears that the frenzy around artificial intelligence may have peaked, which in turn push down AI stocks. Recently, Morgan Stanley and Goldman Sachs CEOs warned that stock markets could be heading to a drawdown, while hedge fund manager Michael Burry, known for shorts on the US housing market ahead of the 2008 crash, bet against Nvidia and Palantir.

The recent correction in global equity markets is being driven largely by the sharp decline in AI-focused companies, said Bajaj Broking Research Team. The brokerage noted that companies such as Nvidia, Microsoft, Amazon, Alphabet, and Meta have grown to become dominant index constituents in the Wall Street. “Their substantial weight in the S&P 500 and Nasdaq means that a 10–20% drop in these stocks drags down the broader market, shaping overall global risk sentiment,” it added.

“In contrast, the composition of the Indian equity market is fundamentally different. India does not have domestically listed, high-valuation AI pure plays comparable to Nvidia or OpenAI. Although the country boasts a large and globally competitive IT sector—represented by firms like Infosys, TCS, Wipro, and HCL Tech—these companies primarily operate as IT services and consulting providers rather than AI product creators…This structural distinction provides India with a natural buffer. Even if global AI valuations correct sharply, the impact on Indian equities is limited,” the brokerage added.

Indian equity markets could be seen as an "anti-AI play" if the present trend of AI trade fading sustains, said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

Valuation comfort:

After a sharp decline, some analysts believe that the valuations of these IT stocks have improved. Santosh Meena, Head of Research at Swastika Investmart, noted that the IT stocks were trading at rich valuations without the double-digit growth to justify them when they were entering 2024. The subsequent correction has now brought valuations (P/E ratios) back to attractive, historical averages, he added.

"We believe the sector is transitioning out of its 'Price Correction' phase and is now in the final leg of a 'Time Correction'. The steep valuation froth has cooled, and the downside risk appears limited. However, a decisive breakout requires a shift in the global macro narrative," said Santosh Meena, Head of Research at Swastika Investmart.

Declining Rupee:

The Indian rupee weakened by about 3.5 percent against the US dollar between end-March and end-October 2025, the finance ministry’s October Monthly Economic Review said.

The report noted that this was a steady, gradual depreciation over seven months and in line with the broader trend in other emerging market currencies. The pressure mainly came from global factors: a stronger dollar, high US interest rates and continued volatility in global financial markets.

The rupee hit a record low of Rs 89.49 against the dollar last week. "The Indian rupee’s fall to a new record low is just a matter of time as the currency is likely headed to 90 per dollar level in the near term," according to Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services.

Notably, a declining rupee against the US dollar also will likely boost IT stocks.

Earnings recovery expectation:

Earlier this month, Motilal Oswal said that the IT sector appears to be at a bottom, with risks skewed to the upside. The brokerage upgraded its growth estimates to reflect an expected recovery that will show meaningfully in the second half of FY27 and gain full momentum in FY28.

"For a meaningful re-rating, large-cap IT companies must demonstrate steady improvements in earnings, margins, and deal wins to reassure investors that the worst is over," said Ajit Mishra, SVP of Research at Religare Broking.

Nomura meanwhile expects marginally better revenue growth of 4.5 percent for large-cap IT companies in FY27, as against FY26. The international brokerage expects mid-caps to continue growing faster than large-caps in FY27.

Nomura expects average FY27 EBIT margin to improve by 30 bps for large-cap companies and by 50 bps for the mid-caps. It sees bigger revenue pool for IT service providers as enterprise AI adoption increases over the next 12-18 months, driving demand for cloud and data services.

"Our outlook index, built on management commentary across companies, indicates an improvement in outlook for deal signings as project delays appear to have bottomed in the Jun-25 quarter. We also see a gradual recovery in revenue outlook and guarded optimism on margins among companies," BNP Paribas said.

What lies ahead for IT stocks?

The question now is whether the consolidation phase is finally ending. Signs of improvement are emerging, but for IT stocks to decisively break out, the market will look for two triggers - sustained sequential revenue growth and clearer evidence that discretionary spending is returning, said Charmi Shah, Business Head at Wealth1.

"Until then, the sector is likely to remain selectively constructive, with investors focusing on firms showing improving order books, operational resilience, and early leadership in AI-driven services," she added.

Select stocks in the sector where innovative business models are being implemented will perform better, said Shetty from Primus Partners. "Also, with the focus of the Indian government to encourage Indian technology players, companies that can create India-specific products along the AI value chain, including data centers, will benefit," he added.

Also read: Jefferies skeptical about rebound in beaten-down IT stocks