Buoyed by Q1 show, Indian IT shrugs off IBM shock

Mumbai: India’s technology stocks Wednesday demonstrated remarkable resilience in the face of the spectacular overnight mauling of US-listed IBM on expectations of a demand recovery in the $280-billion industry, with depressed valuations spawned by a protracted bear phase since the start of 2026 seemingly providing support to locally listed outsourcing powerhouses.

Analysts and money managers also said that better-than-expected Q1 results in the sector so far have eased investor concerns on these companies that were traditionally firm favourites with overseas investors.

The Nifty IT index, which has fallen nearly a quarter in 2026, declined 0.7% on Wednesday, with six of its ten constituents down 0.1-1.4%. The Nifty 50 was up 0.1%.

On Tuesday, tech giant IBM was pummelled 25% after its earnings came in lower than Wall Street expectations.

“IBM’s weak results aren’t directly correlated to Indian IT services, as the company saw a de-growth in the infrastructure segment after a period of high growth, typical after the high growth phase post release of mainframe’s newer version,” said George Thomas, fund manager, equity, at Quantum AMC. “This is why domestic IT stocks did not witness any sell-off.”

While IBM operates across both hardware and software services, the weakness in its recent earnings was primarily driven by a larger-than-expected decline in its hardware business. The impact on its software services segment, which is more comparable to Indian IT companies, was relatively limited. Saurabh Patwa, head of equity and portfolio manager at Quest Investment Managers said Indian IT stocks have already corrected meaningfully over the past few months, and valuations and growth expectations have been reset.

Bear Territory
While the Nifty IT index has declined 25.25% this year, compared with 8% for the Nifty, largecap stocks like Infosys, TCS, HCL Technologies, Wipro and LTM are down 28-35% in 2026 so far.

Devarsh Vakil, head of prime research at HDFC Securities said Indian IT stocks were relatively resilient, as much of the sector’s weakness had already been priced in, with sector valuations correcting sharply from around 30 times to below 17 times one-year forward earnings.

“Recently announced first quarter results from major Indian IT companies, including TCS, HCL Tech, LTM and L&T Technology Services, were better than market expectations, easing concerns around demand and profitability,” he said. “Management commentary across the sector remained constructive and optimistic, supported by improving deal pipelines, stable client spending trends, and a healthier medium-term growth outlook.”

While there have been bouts of upside and recovery in the nearly one-way decline of tech stocks, it has not been meaningful.

Thomas of Quantum also said that while the recovery in Indian IT has not been durable, it is typical during a period of technology transition. “As AI costs and associated token prices decline and deferred discretionary spending gradually returns, we expect deal wins and earnings to improve, as indicated by management commentary in the first quarter,” he said. Others remain more skeptical of the sector’s prospects.

“The sector continues to face a difficult demand environment, with weak discretionary spending and longer decision-making cycles,” said Patwa. “More importantly, companies are dealing with two structural challenges: AI-led productivity and pricing deflation, and the growing presence of Global Capability Centres in India. Both could affect sector growth and margins over the next few quarters.”

‘PICKING WINNERS’
Vakil said he prefers Coforge, Mastek, Mphasis, and Zensar Technologies among midcaps, and Infosys among largecaps. “We believe the worst may be behind for the sector and continue to prefer large-cap IT companies, given their valuation comfort and strong positioning,” said Thomas. Patwa of Quest said that the sharp correction could provide some near-term respite to largecap IT stocks, but he does not see this as a broad-based sector buying opportunity yet.