By Chiranjivi Chakraborty and Samie Modak India’s information-technology stocks are poised to beat their global semiconductor rivals by the most in two decades this week, with analysts saying the sector is set to keep outperforming as the artificial-intelligence rally unwinds.
An index of India’s biggest software exporters surged over 10 per cent week, while a MSCI gauge of global chip stocks tumbled 7.4 per cent, putting the former on course for the biggest weekly outperformance since 2004. AI shares have tumbled in recent days as slowing revenue growth, concerns about infrastructure financing, and renewed fears of rate hikes have fueled concerns that the companies are overvalued.
“If the correction in semiconductors gains momentum, as it has this week, foreign investors will start looking at Indian IT stocks,” said Rajat Agarwal, an Asia strategist at Societe Generale SA in Bengaluru. “We could probably see the end of de-rating in these companies, which itself should bring stability.” There have also been some positive signs for IT shares.
HCL Technologies Ltd. raised its full-year sales growth guidance this week, while Ireland-based Accenture Plc said it expects to increase revenue growth and profit margins through 2029. India’s largest IT firms were swept up in a global selloff in software stocks earlier this year, as some investors feared that AI could disrupt their business models.
Slowing revenue growth amid geopolitical concerns and rising client demand for lower prices also sapped investor sentiment. On Friday, Nifty IT Index gained as much as 3 per cent in early trading, extending an advance to the fourth day. The gauge has climbed over 22 per cent from its July low, but it’s still down about 17 per cent this year, putting it on track for its worst annual performance since 2022.
“Although valuations appear reasonable now, on a relative and absolute basis, the sector lacks near-term catalysts,” Morgan Stanley analysts led by Gaurav Rateria wrote in a note this week. The latest survey of chief information officers globally showed stable growth in 2027, and together with Accenture’s earnings, that points to steady-to-decelerating revenue growth for Indian IT firms, the Morgan Stanley analysts said.
Still, software stocks are now the cheapest they have been since the pandemic year. Stocks in the Nifty IT Index trade at less than 17 times their one-year forward earnings, nearly two standard deviations below the five-year average. The sector’s bellwether, Infosys Ltd., is due to release its second-quarter earnings and commentary on Oct.
23, with the Bengaluru-based firm expected to report revenue growth of just 1.8 per cent. Looking ahead, at least some in the market see a longer rebound. “An analysis of major innovations in the past indicates that while early stages of transition did witness a slowdown, it was immediately followed by a longer period of growth,” said Sumanta Khan, fund manager for equity at Edelweiss Asset Management Ltd.