IT stocks surged up to 3% on Thursday as investors prepared for Tata Consultancy Services to kick off the September-quarter earnings season. While the Nifty IT index outperformed a broader market slump, analysts anticipate modest sequential revenue growth for the sector amid cautious client spending and ongoing uncertainty regarding artificial intelligence.
IT Sector Gains Amid Market Weakness
The Nifty IT index climbed nearly 2% on Thursday, establishing itself as the top-performing sectoral index while most other sectors remained in the red. Shares of Tata Consultancy Services (TCS) led the rally with a 3% jump, while heavyweight peers Infosys and HCLTech each saw gains of nearly 2%. Other industry players, including Wipro, LTIMindtree, Tech Mahindra, Persistent Systems, Coforge, and Mphasis, posted gains between 1% and 2%, according to The Economic Times.
This upward momentum occurred despite a broader weak market sentiment. The rise was supported by a slight easing of the dollar, which nonetheless remained near multi-month highs. Because Indian IT firms generate a significant portion of their revenue from the U.S., a stronger dollar typically increases earnings in rupee terms. Furthermore, investors are increasingly viewing Indian IT services companies as an anti-AI
trade, providing a buffer against ongoing concerns regarding the impact of artificial intelligence on the sector.
Analysts Expect Cautious Growth for TCS
Market attention is squarely on TCS as it begins the Q2 earnings season. Analysts generally expect the company to report on a cautious note, with projected revenue growth of about 13% year-on-year and profit growth of approximately 9%. However, sequential growth is expected to remain soft, with most brokerages estimating a constant-currency revenue increase of 0.5-0.6%.
This trend reflects a broader industry slowdown. Jefferies projects that Indian IT services companies will report weak sequential revenue growth of 1.7% in constant-currency terms, though aggregate EBITDA margins are expected to improve by 30 bps QoQ due to currency tailwinds. The tepid growth is attributed to cautious client spending and a slowdown in discretionary projects. Investors are currently monitoring whether artificial intelligence will eventually provide new revenue streams or negatively impact billing for traditional services.
Broader Market Context
The IT sector’s performance stands in contrast to the wider Indian stock market, which has faced sustained pressure. Surging bond yields have kept investors on edge, leading to declines in shares like Adani Ports, Titan, and Tata Steel, which dropped around 2% each. HDFC Bank, Bajaj Finance, Infosys, Bharti Airtel, Trent, Bajaj Finserv, and NTPC shares fell around 1% each.
Despite the broader downturn, some segments showed resilience. Broader markets moved into the green, with the Nifty Midcap 100 and Nifty Smallcap 100 indices rising up to 0.3%. Sectorally, Nifty Realty gained nearly 2%, while Nifty Healthcare dropped 3%. Market breadth favored the bears, with the National Stock Exchange seeing 1,813 declines against 1,740 advances, with 132 stocks remaining unchanged. Kotak Mahindra Bank gained 3%, while ICICI Bank and IndiGo rose over 2% each.
The reporting provided here is provided by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Adhikary and their relatives, as defined under Section 2(77) of the Companies Act, 2013, do not hold any financial interest in the mentioned companies as of the publication date.