IT Stocks Surge as Rupee Hits Record Low, Infosys Buyback Fuels Rally

IT Sector Stages Sharp Recovery

The Indian stock market witnessed a significant revival in its technology sector as IT stocks posted a strong recovery. The Nifty IT index surged over 2%, with all major constituents trading in positive territory. This broad-based rally, led by frontline companies, allowed the sector to outperform the wider market, which has seen mixed sentiment in recent trading sessions. The renewed investor interest comes after a prolonged period of underperformance for the sector throughout the year.

Infosys Buyback Proposal Ignites Optimism

Infosys was the standout performer, with its stock climbing nearly 4% to become the top gainer in the IT pack. The surge was triggered by the company's announcement that its board of directors would meet on September 11 to consider a proposal for a share buyback. This news not only lifted Infosys shares but also created a positive ripple effect across the entire IT sector. Market participants view the potential buyback as a shareholder-friendly initiative that could encourage other major technology firms to consider similar measures, signaling confidence in their financial health and future prospects.

Rupee Depreciation Provides a Major Tailwind

A significant catalyst for the rally was the sharp depreciation of the Indian rupee against the US dollar. The currency breached several psychological levels, hitting fresh all-time lows of ₹88.36, ₹89.70, and even ₹90.43 in recent sessions. For Indian IT companies, which derive a substantial portion of their revenue from overseas markets, particularly the United States, a weaker rupee is highly beneficial. It boosts their earnings and profit margins when dollar-denominated revenues are converted back into rupees, providing a natural hedge against operational pressures.

Broad-Based Gains Across IT Companies

The positive momentum was not confined to a single stock. Wipro emerged as the second-best performer, reflecting strong buying interest. Other industry heavyweights also recorded notable gains, indicating widespread confidence. The table below highlights the performance of key IT stocks during the rally.

Other companies like HCL Technologies, Mphasis, and Oracle Financial Services Software also closed higher, reinforcing the sector-wide positive trend.

Favorable Global Cues and Valuations

Beyond domestic factors, global developments also supported the rally. Softer-than-expected US inflation data revived hopes of further interest rate cuts by the US Federal Reserve. Lower interest rates in the US can stimulate economic activity and encourage businesses to increase discretionary spending on technology, directly benefiting Indian IT service providers. Furthermore, strong quarterly results from global IT consulting major Accenture, driven by demand for AI solutions, provided a positive read-through for its Indian peers. After months of underperformance, analysts also pointed to value buying, with sector valuations appearing attractive compared to historical averages.

Lingering Headwinds and Long-Term Concerns

Despite the recent relief rally, the broader outlook for the Indian IT sector remains complex. On a year-to-date basis, the Nifty IT index is down nearly 19%, in stark contrast to the benchmark Nifty 50, which has gained about 5%. This underperformance is rooted in persistent global challenges, including a slowdown in tech spending as clients cut discretionary budgets and delay the execution of large contracts. A potential risk on the horizon is the threat of US tariffs on software exports. With major firms like TCS, Infosys, and Wipro earning over 60% of their revenue from the US, any protectionist measures could significantly impact their financials. Other structural headwinds include stricter visa regulations and the rising cost of local hiring in the US.

The Role of Artificial Intelligence

In response to the evolving market, Indian IT companies are actively investing in Artificial Intelligence (AI). Infosys introduced an AI-first model to transform global capability centers, while TCS announced a five-year deal with SAP to enhance AI-driven capabilities and a partnership with TPG for a new AI data center business. While these initiatives signal a strategic shift, some analysts remain cautious. HSBC Research noted that despite global AI exuberance, India might be at a disadvantage in the current phase of the AI revolution, with a potential negative revenue impact in the short term before growth becomes accretive.

Analyst Outlook and Conclusion

Brokerages have offered mixed but cautiously optimistic views. Motilal Oswal suggested the IT services sector could be nearing an inflection point, with stronger growth expected in the latter half of FY27 and into FY28 as AI adoption moves from pilot projects to full-scale deployment. The combination of a weak rupee, shareholder-friendly actions like buybacks, and early signs of a recovery in client spending has provided a much-needed boost to IT stocks. However, the path to a sustained recovery remains dependent on a tangible rebound in global demand and the navigation of geopolitical and regulatory risks.