IT stocks on the move: Why are they getting a boost?

IT stocks on the move: Why are they getting a boost?

The Indian IT sector is showing renewed life. After a period of quiet, companies in the space are catching the market’s attention again, thanks to some bold corporate actions and shifts in investor behaviour. 

One firm in particular took the lead, setting the tone for peers to follow.

Blog summary: five big take-aways

• Major buy-back announcement: A large Indian IT company announced a significant share buy-back, signalling confidence to the market.
• Selective strength across the sector: The rally is stronger in some names, while others remain flat or cautious.
• Institutions are changing their stance: While foreign institutional investors (FIIs) have been trimming exposure in parts of IT, domestic funds and mutual funds are stepping in.
• Global tailwinds re-emerging: the pick-up in digital/cloud deals and a stable currency are helping the export-oriented IT firms.
• Valuation and rotation play: with many large IT stocks having corrected or stalled, investors are looking at them again as relative value plays.

What’s driving the surge in IT stocks?

The impetus came when Infosys Ltd made a blockbuster buyback announcement, its largest ever. That move sent a clear message: management believes the stock is undervalued and cash returns matter. That positive signal bled into other names in the space and helped revive investor interest.

Companies such as HCL Technologies Ltd and Tech Mahindra Ltd saw strong gains in that wave of optimism. Meanwhile, larger firms like Tata Consultancy Services Ltd and Wipro Ltd remained more muted, likely because they already carry rich valuations and are being watched for fresh catalysts.

Institutional flows tell an interesting story: FIIs have been cautious, reducing stakes in some IT names over the last few months. Domestic players (mutual funds, domestic institutional investors) are seeing the pullback as an opportunity and adding exposure, betting that the risk/reward is now favourable.

On the fundamentals side, the export-oriented nature of Indian IT firms helps: a somewhat stable rupee, recovery in global IT spending (especially digital/cloud), and steady cash flows provide support. Also, because many of these companies have strong balance sheets, investors are comfortable with them during uncertain times.

Spotlight on Cyient Ltd

While many investors focus on the large-cap names mentioned above, Cyient has been quietly attracting attention. The company is gaining on increased order wins in high-margin segments such as aerospace & defence and engineering services. Its mid-cap status means there’s more room for upside in investor sentiment if it delivers. For traders and investors looking beyond the headline names, Cyient presents a compelling play because it combines growth potential with relative value.

Could the India-US deal announcement be adding fuel?

Yes, and here’s how. Reports suggest that India and the United States are nearing a long-pending trade agreement. Among the key benefits: a major reduction in U.S. tariffs on Indian exports (potentially down to 15-16% from ~50%) if the deal goes through. Angel One+3Reuters+3mint+3

Here are two concrete ways this could help IT stocks:

• Global demand confidence: A smoother trade relationship adds to global confidence in India’s role in global services and supply chains. IT firms, heavily reliant on exports and cross-border services, benefit from such tailwinds.
• Weak overhangs reducing: Trade tensions (tariffs, protectionism) are one reason for caution in export plays. If a deal signals fewer trade frictions, investor risk premium shrinks and IT stocks may get re-rated.

However, it’s important to note: the effect is indirect. The deal report focuses more on goods (tariffs) than services, and a large part of Indian IT’s business is services to the U.S. and other markets. Still, the positive sentiment carries across sectors, and IT often gets pulled in as part of export/outsourcing plays.

In conclusion

The revival in some IT stocks is driven by a mix of corporate action (buybacks), improved sentiment (domestic buying) and broader global/trade cues. 

The prospect of a deal with the U.S. adds an extra layer of optimism. That said, not all companies are reacting equally – so looking at individual names, business models and valuations remains important.

Disclaimer: This analysis is for informational purposes only. Consult your financial advisor before investing.

                                                                                                                                                       Chandan Pathak

                                                                                                                                                Equity Research Analyst