Indian IT services stocks are positioned for continued growth, following a strong rally in November that has set them apart from the broader market, which is experiencing weak sentiment. The sector, led by major players like Infosys Ltd. and Tata Consultancy Services (TCS), has surged by approximately 7% this month, outperforming both domestic and regional competitors. In contrast, the MSCI Asia Pacific Information Technology Index has fallen by about 3% during the same period.
A key driver behind the sector’s strong performance is improving demand from international clients, combined with expectations that U.S. President Donald Trump’s return to office will spur higher technology spending and a stronger U.S. dollar. The anticipated corporate tax cuts in the U.S. are seen as particularly beneficial for tech outsourcing, further boosting Indian IT firms’ prospects. A stronger dollar also gives an added advantage to Indian exporters, as they earn revenues in U.S. currency.
For Indian investors facing weak earnings reports from other industries and ongoing foreign investor outflows — which have totaled approximately $12 billion since early October — the IT sector offers a safe haven. The sector’s robust performance reflects a shift in fortunes for exporters, driven by early policy signals from Trump’s administration, including a focus on boosting domestic manufacturing through higher tariffs, which are not expected to significantly affect IT services.
Sunil Kaul, a strategist at Goldman Sachs, noted that IT stocks could be candidates for earnings upgrades, particularly as the strength of the dollar will likely enhance profitability for Indian IT firms. “Service exports are likely to be immune to Trump’s tariffs,” Kaul added.
With a cyclical slowdown taking place in other sectors of the Indian economy, it makes sense for investors to focus on exporters, Kaul said. Goldman Sachs recently upgraded its outlook for the IT sector to “overweight,” reflecting this positive sentiment.
Despite broader market volatility, as evidenced by a 7% drop in the Nifty 50 index this quarter, Indian IT stocks such as HCL Technologies Ltd. and Wipro Ltd. have posted gains. Infosys, in particular, raised its annual sales forecast for the second time this year, signaling renewed confidence in client spending on software services.
Seasonal factors also support the momentum in Indian IT stocks. According to analysts at Ambit, the final quarter of the year traditionally delivers the highest returns for the sector. Since 2000, the IT index has averaged a 10% gain in the fourth quarter, as per Bloomberg data.
Furthermore, the prospect of the Federal Reserve cutting interest rates could provide an additional tailwind for the sector. Ambit’s analysts noted that the 12-month forward returns for Indian IT stocks have been positive in three of the four previous instances when the Fed entered a rate-cut cycle.
With a favorable mix of domestic and international drivers, Indian IT stocks are expected to continue their outperformance as other sectors grapple with economic headwinds.
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