Indian IT stocks are making a quiet yet impressive comeback, driven by favourable macroeconomic trends and renewed investor interest. The Nifty IT index has outpaced most other indices over the past month, gaining seven percent in November alone. This resurgence comes despite lingering concerns over AI-driven disruption and slower order wins.

Strong fundamentals driving optimism

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The strengthening dollar is proving advantageous for Indian IT exporters, given their significant earnings in the greenback. Additionally, expectations surrounding Donald Trump’s potential tax cuts in the US are fueling optimism that companies will boost IT spending. According to Sunil Kaul of Goldman Sachs, a stronger dollar and Trump’s pro-business policies could act as catalysts for the sector, with Indian IT service providers likely to benefit from enhanced outsourcing demand.

Meanwhile, domestic mutual funds have started trimming their underweight positions on IT stocks. According to Elara Capital, IT remains the second most underweight sector, but only 30 percent of top asset management companies are currently overweight. This leaves significant room for increased domestic fund allocations, particularly in large-cap IT stocks like Infosys, TCS, and HCL Technologies.

Resilience amid challenges

Indian IT firms have shown resilience in addressing visa-related challenges in the US. Analysts at Motilal Oswal highlighted that during Trump’s earlier presidency, top Indian IT companies adapted by ramping up local hiring, which supported an average revenue growth of 7.5 percent from 2016 to 2020. Analysts believe Trump’s second term could bring even more business-friendly policies for Indian IT firms.

Attractive valuations and defensive appeal

Despite recent rallies, IT valuations remain attractive. The Nifty IT index’s price-to-earnings ratio is 28.9, lower than sectors like FMCG and healthcare. Large-cap IT stocks, which have surged 30–40 percent from their lows, are now viewed as safer bets by fund managers like Kartik Kumar from Axis Mutual Fund.

Seasonal momentum and structural strengths

Historical data shows the IT sector often delivers its highest returns in the fourth quarter, with analysts at Ambit suggesting this trend will persist. Combined with the Federal Reserve’s rate-cut cycle, Indian IT stocks are well-poised to sustain their momentum.