Summary:
Indian IT stocks rallied up to 5% after Nvidia reported strong quarterly results and raised its revenue outlook, signalling continued strength in global AI infrastructure spending. The Nifty IT index gained nearly 4%, with LTIMindtree, HCLTech and TCS among the major gainers. However, concerns around AI disruption, pricing pressure and the delayed impact of AI investments mean the sector's longer-term outlook remains cautiously optimistic.
Indian IT stocks jumped up to 5% on Friday, August 28 as the Nifty IT index rallied nearly 4% on the day and crossed the 31,000 level, gaining 2.75%. LTIMindtree jumped over 5%, while HCLTech and TCS gained nearly 4% each. Coforge, Tech Mahindra, Persistent Systems, Infosys and OFSS gained nearly 3%, while Wipro and Mphasis gained nearly 2%.
TCS gained the most among the Nifty 50 stocks at 3.65%, followed by HCLTech at 3.41% and Infosys at 2.78%. Technology stocks witnessed a broad-based buying on the back of positive cues from the global tech space.
Why did IT stocks jump after Nvidia results?
Nvidia’s better-than-expected second-quarter results and upbeat revenue outlook prompted a broad-based rally across technology stocks on Thursday.
The GPU maker posted second-quarter revenue of $96.2 billion, up 18% from the last quarter and 106% from the same period last year. Its GAAP and non-GAAP gross margins came at 75%, while GAAP diluted EPS was at $2.46 and non-GAAP diluted EPS was at $2.22.
Nvidia expects revenue of $108 billion for the third fiscal quarter 2027, with a 2% variance. The third-quarter revenue estimate does not include the Data Centre computing revenue from China. The company expects GAAP and non-GAAP gross margins at 74%, with a 50-basis-point variance, while the GAAP operating expenses are at $9.2 billion, compared to $9 billion for non-GAAP.
The results outperformed the estimates as it highlighted that the AI infrastructure spending is set to remain robust. Nvidia shares jumped over 9%, with the Nasdaq Composite gaining nearly 1.5%.
Artificial Intelligence worries linger
Indian IT stocks witnessed a sharp rally on the back of Nvidia’s results, with the shares of mid-cap companies gaining over 4% on the day. However, such a sharp rebound is unusual given concerns around AI eating into the IT services revenue.
The recent IT sector correction witnessed the capping of AI software and services stocks after a steep rally in early 2024. While the IT story of India was feared to be over, the recent global technology sector rout has seen a positive shift in sentiment for Indian IT players.
Expectations of a re-rating of Indian IT stocks by global investors will also create a positive headwind for the local IT stocks as the outflows from the AI space have been unwinding. India’s IT sector may be a beneficiary of the AI market’s volatile nature.
Nifty IT Index Live Charts & Data
What next for IT stocks?
While the sharp rebound on Friday will be a positive sign for the IT sector, the recent earnings from Indian IT firms suggest a mixed picture.
The first-quarter results were muted with concerns around pricing power, pricing pressure, and the long gestation period of AI investments for revenues to come online. However, expectations are that the AI-enabled volumes will aid the IT sector from FY30, with the dollar revenue growth turning from low-single digits to mid-single digits.
However, these benefits will take time to accrue and unless and until the AI investment cycle translates into higher deal values and win rates for Indian IT firms, the outlook will remain cautious.
Stocks to watch out for
TCS, Infosys and Tech Mahindra may remain range bound in the near term due to their long gestation period and limited near-term upside. Wipro and Mphasis still have structural concerns. By contrast, some mid-cap IT companies could be better placed if the AI-enabled spending wave leads to higher technology budgets.
Nvidia’s strong results will help the Indian IT stocks, but they will depend on whether the AI boom translates into higher revenues and profitability for local technology firms in the long run.
