Indian equity indices bounced back on Monday, ending a three-day losing streak, primarily driven by gains in Information Technology (IT) stocks. The recovery comes as investors shift focus to domestic IT companies, attracted by their relatively appealing valuations.

Market Performance

The NSE Nifty closed at 25,574.00, up 0.30% or 82 points, while the BSE Sensex ended at 83,535.00, gaining 0.40% or 319 points. The Nifty IT index emerged as a standout performer, climbing 1.60%.

Sector-wise Performance

Top Performers

Infosys led the gains among Nifty stocks, rising 2.60%, followed by HCL Technologies, which increased by 1.80%.

Investor Activity

Foreign portfolio investors (FPIs) sold shares worth ₹4,114.85 crore, while domestic investors bought ₹5,805.26 crore worth of shares.

Market Outlook

Analysts attribute the recovery to a technical bounce and expect the market to remain range-bound between 25,300.00-25,700.00 due to a lack of fresh triggers as the earnings season concludes.

Shift in Investment Focus

Investors are reportedly moving funds from U.S.-based AI stocks to domestic IT stocks, attracted by their appealing valuations and limited downside potential. This shift reflects a growing interest in the Indian IT sector among both domestic and international investors.

Infosys Buyback Announcement

In a significant development, Infosys, one of India's leading IT services companies, has announced a buyback of its equity shares. The company plans to repurchase up to 10,00,00,000 (Ten crore) fully paid-up equity shares, representing approximately 2.41% of its total paid-up equity share capital. The buyback will be executed at a price of ₹1,800.00 per equity share, for an aggregate amount not exceeding ₹18,000 crore.

This move by Infosys, coming at a time when IT stocks are leading the market recovery, could further boost investor confidence in the sector. The buyback is seen as a way for the company to return surplus cash to shareholders and potentially enhance long-term shareholder value.

As the Indian equity market shows signs of recovery led by IT stocks, investors will be closely watching for sustained momentum in the sector and any potential ripple effects across other market segments.

The Indian IT sector faced headwinds in early trading as the Nifty IT index fell over 1%, with major players Wipro and Infosys leading the decline following their quarterly earnings reports.

Wipro's Steep Decline

Wipro, a leading global information technology company, saw its shares drop 4.6% in the wake of its Q2 results. The company reported:

• Consolidated net profit: ₹2,646.30 crore (up 1.2% year-on-year)
• Revenue from operations: ₹22,700.00 crore (up 2.5% year-on-year)
• IT services segment revenue: $2,604.30 million (down 2.1% year-on-year)
• IT services operating margin: 16.7%

The company's operating margin was impacted by a provision of ₹1,165.00 million made due to a customer bankruptcy.

Infosys Follows Suit

Infosys, another IT heavyweight, also experienced a downturn with its shares falling 1.6%. The company recently released its quarterly results, which may have influenced investor sentiment.

LTIMindtree Bucks the Trend

In contrast to its peers, LTIMindtree emerged as the sole gainer among IT stocks, with its shares rising 2.3%.

Broader IT Sector Impact

The decline in IT stocks was widespread, with eight out of the nine Nifty IT constituents trading in negative territory. This sector-wide downturn indicates that investors may be reassessing their positions in IT stocks.

AI Participation and Future Outlook

Nitin Raheja, Executive Director at Julius Baer, provides insights into the current state of AI adoption in India. He notes that India has not yet seen meaningful AI participation compared to global markets, with Indian companies lagging behind the curve. Technology services companies are being forced to invest in AI capabilities, moving away from their traditional high ROCE, low capex model.

Raheja expects data centres, assemblers, and semiconductor supply chain to benefit early from this shift towards AI. He anticipates that consumption will remain the dominant market theme, supported by government policy initiatives and upcoming state elections.

Financial Sector and Economic Projections

Raheja projects that FY26 could mark an earnings revival with 15-16% growth, driven by the financial sector which comprises one-third of India's market cap. He expects credit growth to recover from current 8-9% to 12-13%, potentially delivering 14-15% earnings growth from financials.

IT Sector Outlook

While cautious on large-cap IT companies due to slower growth prospects and potential margin pressure from AI productivity gains, Raheja sees opportunities in midcap IT firms. This aligns with the current market trend, where larger IT firms like Wipro and Infosys are facing challenges while midcap companies like LTIMindtree are showing resilience.

Banking Sector and Economic Growth

Raheja favors top-tier private banks and select PSU banks, citing attractive valuations and government focus on value unlocking. Despite global uncertainties, he remains optimistic about nominal GDP growth reaching 10.5-11% next year if inflation stays at RBI's projected 4-4.5%.

Looking Ahead

As the IT sector navigates through these challenges, investors will be closely watching how these companies adapt to the evolving market conditions. Factors such as global IT spending, digital transformation initiatives, and the companies' ability to innovate and capture new opportunities, particularly in AI, will likely play crucial roles in their future performance.