IT shares gained up to 4 percent on Tuesday amid strong buying interest ahead of the June quarter earnings season, with investors looking for management commentary on demand trends.
The Nifty IT index rose as much as 3 percent, extending its rebound in July to more than 6 percent after a 10.5 percent decline over the previous two months, ahead of Tata Consultancy Services first-quarter results due on Thursday.
The sector is expected to report subdued earnings, weighed by AI-led pricing pressures, weak client spending and geopolitical uncertainty.
Ponmudi R, CEO of Enrich Money, said, "Today's strong rally in IT stocks was largely driven by renewed optimism ahead of the Q1 earnings season, improving global risk sentiment, and continued enthusiasm around AI-led technology spending. Investors are selectively accumulating quality IT names after a prolonged phase of underperformance, expecting management commentary to indicate gradual improvement in demand."
"The sustainability of this rally will depend less on today's price action and more on three key factors: the revenue outlook for the second half of FY27, deal wins, and margin guidance. While the sector may continue to witness positive momentum in the near term, earnings commentary will be the real trigger that determines whether this is the beginning of a broader trend reversal or just a relief rally."
Among stocks, LTM was the top gainer, rising 3.7 percent.
Infosys and HCL Technologies advanced 3.5 percent and 3 percent, respectively.
Tata Consultancy Services, Persistent Systems, Tech Mahindra and Coforge gained between 1 percent and 2 percent.
Meanwhile, Indian information technology services companies could emerge as an unexpected beneficiary of the artificial intelligence boom, according to Morgan Stanley, which described the sector as a potential "dark horse" despite persistent investor concerns over AI-led disruption.
"IT services may prove the dark horse as the world turns to these firms to build AI applications and solutions," the brokerage said in its latest India Equity Strategy Playbook.
The brokerage's view reflects a more constructive stance on the sector, which has been among the weakest performers in the Indian market over the past year amid concerns that generative AI could automate coding, reduce discretionary technology spending and weaken the traditional outsourcing model.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.