Technology sector stocks are in focus today. In the intraday trade, the Nifty IT index surged more than 4%, extending its gains for a third straight session and emerging as one of the top-performing sectoral indices of the day.

All 10 constituents of the Nifty IT index are trading in positive territory. 

Let’s take a look at the seven key factors behind today’s rally in technology stocks.

Global AI optimism

The first trigger came from overseas markets, where AI-linked stocks saw a strong rally. US-based AI data cloud company Snowflake delivered a strong outlook and highlighted its plans to expand further in cloud computing and artificial intelligence.

AI is creating opportunities for IT companies

Another important reason behind the rally is the growing belief that artificial intelligence may create new revenue opportunities for IT services companies rather than disrupt their business models.

According to Kunal Bajaj, Research Analyst at Choice Institutional Equities, “Indian IT continues to extend its upmove, supported by improving global software sentiment and growing evidence that enterprise AI adoption is expanding technology spending opportunities rather than disrupting incumbent service providers. US software stocks have rebounded as recent corporate commentary increasingly points to AI creating incremental demand across software, cloud and enterprise technology.”

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He further added, “Large-cap Indian IT companies remain well positioned to capture this opportunity given their deep client relationships, scaled delivery capabilities and expanding AI offerings. Alongside supportive valuations following the sector’s correction and strong orderbook and a gradually improving outlook for discretionary tech spending, this is driving renewed investor interest across the IT sector.”

Technical charts indicate a possible trend reversal

Apart from improving business sentiment, technical indicators are also beginning to turn favourable for the sector.

Rajesh Bhosale, Technical Analyst at Angel One, said, “Nifty IT has largely lagged the broader market rally over the past few months. However, the index was positioned near a crucial long-term support zone marked by the 2022 and 2023 swing lows. Since mid-May, prices have gradually rebounded from this support, with momentum picking up after the index closed above its 50 DEMA yesterday.”

Momentum indicators are strengthening

The rally is not only being supported by price action but also by improving momentum indicators. 

Bhosale further added, “Today’s bullish gap-up opening appears to be a breakaway gap, while the RSI Smoothened has crossed above the 60 mark after a prolonged period, indicating strengthening momentum. Coupled with the bullish reversal formations visible on the weekly and monthly charts, this suggests that the uptrend is likely to extend further in the near term.”

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Analysts see more room for upside

Market experts believe the recent rally could have further legs if the positive momentum continues. According to technical analysts, the next few weeks could see broader participation from technology stocks as investors return to a sector that had lagged behind much of the market rally earlier this year.

Bhosale noted, “Technically, Nifty IT could now head towards its 200 DEMA, placed around the 34,000 mark, over the next few weeks, with broad-based participation expected across the sector. On the downside, the 50 DEMA along with the bullish gap zone near 30,000 is likely to provide immediate support. Among the constituents, Tech Mahindra, TCS, and Coforge appear well placed to outperform, backed by relatively stronger chart structures.”

Nifty IT stock joins the rally

In intraday trade, TCS jumped around 6%, while Infosys gained more than 5%. Coforge advanced about 5%, HCLTech climbed over 4%, and Mphasis added around 4%. LTIMindtree rose more than 3%, while Persistent Systems and Tech Mahindra gained over 2%. Wipro and Oracle Financial Services Software also traded in positive territory.

Brokerages remain positive on AI-driven demand

Brokerage houses are also monitoring how artificial intelligence is changing spending patterns across the global technology industry.

CLSA, in its latest report, noted, “We highlight guidance and the latest quarterly performance of various SaaS players to assess any potential negative impact from AI. While AI has necessitated a pricing model shift from seat-based to consumption-based, latest guidance and EPS numbers continue to be robust. IT companies that have strong partnerships with SaaS providers should continue to see healthy demand for product engineering-and implementation-related work.”