TCS, Infosys, IT stocks: History suggests risk-reward turning favorable

A recent sharp recovery in IT shares, with a 6 per cent jump on the benchmark NSE IT index from its decade-long rising trendline support, is indicating a bounce amid oversold conditions. Infosys Ltd, the second-largest IT firm, has seen its shares rising 7 per cent in the past five sessions. TCS, the largest software exporter, gained 3 per cent during the same period. Wipro and HCL Technologies Ltd rose 4 per cent each, while Tech Mahindra Ltd advanced 6 per cent, during the same period.  

ICICI Securities noted that the NSE IT index has witnessed a maximum price-wise correction of 35 per cent in calendar 2006, with time-wise corrections lasting between six and seven quarters. At present, it noted that the index has corrected 42 per cent in the past six quarters and approached its long-term rising trendline. This alignment with the historical rhythm offers a highly favorable risk-reward setup at the current juncture, the domestic brokerage said.

“The IT sector continues to act as a relative defensive pocket within the market. Technology exporters like Infosys and TCS are likely to remain supported by persistent weakness in the Indian rupee, as a depreciating domestic currency improves earnings visibility for export-oriented businesses,” said Hariprasad K, SEBI-registered Research Analyst and Founder at Livelong Wealth. 

Foreign brokerage UBS in latest UBS Evidence Lab survey noted that IT budgets are expected to grow at an average rate of 4.1 per cent over the next 12 months. This would be down from 4.6 per cent in the October 2025 survey, likely reflecting some increased caution amidst the ongoing Iran crisis. 

“Overall, however, this does not materially change our expectation of a mid-single digit growth in tech budgets; that said, the share of IT Services within this budget remains a key variable; our earlier enterprise survey indicated that IT services spend is also expected to grow broadly in line with overall IT budgets,” it said on May 12.

Pankaj Murarka, Founder & CIO at Renaissance Investment Managers said he finds IT stock valuations attractive, citing strong growth potential. Murarka’s management and advisory firm, which manages close to Rs 5,000 crore in assets under management, has about 10 per cent exposure to the information technology sector. Murarka said IT firms are of high quality, with probably no leverage on the balance sheet and a lot of cash on balance sheets. Calling them cash machines, which are generating cash year after year, he said IT valuations are very attractive at present. 

Arihant Capital Markets said Indian IT stocks present a compelling buying opportunity, trading at a significant discount of 30 per cent to their three- and seven-year historical average P/E multiples. The ongoing rupee depreciation provides a direct and meaningful earnings tailwind, it said.

“Since Indian IT companies earn predominantly in USD while incurring costs in INR, every rupee of depreciation directly boosts reported revenues, margins and EPS without any additional operational effort,” the brokerage said.