Indian IT stocks saw a recovery on Wednesday, with the Nifty IT index rebounding after the previous session’s underperformance, as investor sentiment steadied following brokerage commentary that tempered concerns around AI-led disruption. A CLSA report highlighted no increase in AI-led deflation, easing fears of sharp pricing pressure on IT services.
The Nifty IT index was up 2.78% at the end of trading on Wednesday after a fall of 0.97% on Tuesday.
Among the top gainers on the day, Coforge (up 5.13%) led the pack with the sharpest uptick, followed by Oracle Financial Services Software (OFSS; up 4.73%) and Persistent Systems (up 3.52%), reflecting a broad-based recovery across mid-tier IT names after the previous session’s sell-off.
Among large-cap IT stocks, Tech Mahindra (up 3.05%) and HCLTech (up 2.79%) were among the key movers, while Infosys (up 2.74%) and TCS up 1.98%) also ended higher, indicating a stabilisation in sentiment across frontline companies.
The rebound comes a day after IT stocks fell on concerns that rapid advancements in artificial intelligence—particularly around automation and agentic AI—could compress traditional revenue models built on labour-based billing.
Debunking the AI Deflation Myth
However, CLSA in its Q4 commentary suggested that such fears may be overstated, at least in the near term. “We find no evidence of increased deflation in renewal contracts due to the latest AI tools from Anthropic and OpenAI since their launch,” analysts from the brokerage said citing conversation with management from IT companies ahead of the fiscal final quarter results.
The brokerage noted that TCS continued to view AI as a net tailwind for the industry, with a focus on building applications through AI tools becoming an opportunity for India’s large IT services firm. “TCS is in advanced discussions with Anthropic as well around building a partnership like the one they did with OpenAI,” CLSA analysts noted.
The report did call out HCLTech as continuing to see 2%-3% gross deflation per annum due to AI, which CLSA said could be effectively offset by volume opportunity in key areas like custom silicon chip designing, physical AI, robotics, IP revenue, and marketing as a service.
Tailwinds and Vertical Resilience
Vertical-wise demand trends are also expected to remain resilient, particularly in the BFSI segment, which continues to see discretionary spending and deal momentum, analysts said. While technology verticals are expected to hold up well, sectors such as retail, autos, and healthcare could see relative softness, they added.
On the macro front, CLSA noted that direct exposure to the Middle East remains limited for Indian IT companies, although broader risks will depend on how geopolitical tensions impact global growth and enterprise spending.
The brokerage also pointed out that valuations for Indian IT stocks are now near their 10-year averages, making the sector relatively attractive after recent corrections.