IT stocks rally as AI deals, valuations draw investors

Mumbai: Information technology stocks surged on Monday, dodging a weak broader market, with the Nifty IT index closing at its highest level since April 23, as attractive valuations and recent AI-led partnerships drew investor interest and prompted traders to build some fresh long positions.

The Nifty IT index advanced 2.7%, its strongest single-day gain in nearly two weeks (since May 19), even as the benchmark Nifty declined 0.7%. Tech Mahindra, Infosys and LTM rose 3.7% each, while Persistent Systems gained 3.6%. Coforge and Oracle Financial Services Software advanced 2.6% and 2.1%, respectively.

“Indian IT firms are following suit of American companies like Anthropic and OpenAI by taking up contracts and tie-ups which are perceived as promising by investors,” said Gaurav Sharma, head of Research, Globe Capital.

Wipro‘s expanded Agentic AI partnership with ServiceNow and Coforge’s acquisition of Encora have helped ease concerns that had weighed on the sector earlier due to AI-linked disruption fears.

The rebound comes after a sharp underperformance this year. The Nifty IT index has fallen over 21% so far in 2026, compared with a 10.5% decline in the benchmark Nifty. The recent momentum has turned positive, with the IT index gaining about 3% over the past week, while the Nifty has fallen 2.7%.

“The open interest has doubled in the past couple of months in large-cap IT stocks, indicating a huge build-up of short positions,” said Jay Vora, Technical Analyst, Mirae Asset Sharekhan. “On Monday, while short positions remained as is, traders built fresh long positions in the space.”

Vora said that a more meaningful short covering rally would require stocks to move above key technical levels, with most large-cap names currently 2-3% below their 40-day exponential moving averages.”There are short positions in the midcap IT companies as well, but it is not as significant as the large caps,” he said.

The rebound in IT shares is also on account of valuations falling below 10-year averages following the recent sell-off.

“Large-cap names like TCS and Infosys are trading at mouthwatering levels, close to 16-17 times Price to Earnings, while midcap companies like Coforge, Oracle and Mphasis are around 20-30 times PE, which are attractive,” Sharma said.

While near-term volatility may persist, valuations remain compelling over a two-to-three-year horizon, he said. Sharma’s top picks are OFSS, Tech Mahindra, Coforge and Mphasis, and recommends IT Exchange Traded Funds for retail investors.

The momentum favours IT stocks now, though the index is nearing key hurdles.

“Technically, the Nifty IT index has immediate support established at the 29,300-28,900 zone, while initial resistance is positioned at 30,500, with a broader multi-week position of 31,200,” said Nischal Jain, Quant Researcher, Share.Market by PhonePe.

Sharma said the Nifty IT index is on the verge of a breakout from an inverse head and shoulder pattern, which could extend the rally towards 31,500.