Kospi’s mammoth 17% surge spells caution for Indian IT stocks. Why TCS, Infosys, others are down up to 5%

Shares of information technology companies, including TCS, Infosys, Tech Mahindra, Wipro and HCL Tech fell as much as 4.5% after a string of strong earnings from global AI-focused companies renewed confidence in artificial intelligence spending and cloud demand, easing concerns that massive investments in AI were failing to deliver adequate returns.

TCS, India’s largest IT company, declined over 4% to Rs 2,330 on the BSE. Infosys shares also dipped over 4% to Rs 1,107, while HCL Tech plunged 4.5% to Rs 1,293. Wipro declined 3.3% to Rs 180 per share, while Tech Mahindra traded 3.5% lower at Rs 1,610. Midcap IT stocks Coforge and Persistent Systems declined up to 3%.

Why are AI stocks surging again?

Microsoft led the advance after reporting robust Azure cloud growth, easing worries over the payoff from heavy AI infrastructure spending. Further, Amazon jumped over 9% in extended trading after reporting second-quarter revenue that topped analysts' expectations, supported by continued strength in its cloud computing business.


The positive momentum spread to Asia, where South Korea’s Kospi rallied 17% as Samsung shares surged more than 21% and SK Hynix soared over 26%. Both companies had reported strong quarterly results earlier this week.

Also read: South Korea’s Kospi rockets 17% after massive 3-day selloff. What’s behind the surge?

Samsung posted a record quarterly profit, driven by its semiconductor business, and said it expects a favorable supply-demand environment for memory chips to continue through at least 2027 while pointing to an increase in long-term customer contracts. SK Hynix also reported record revenue, although its quarterly profit came in below elevated market expectations.

U.S. equities also rebounded on Thursday after the previous session's sell-off that followed the Federal Reserve's decision to keep interest rates unchanged. Technology stocks and semiconductor companies led the recovery.

The Nasdaq Composite rose 2.8% to close at 25,122.18, snapping a six-session losing streak. The Dow Jones Industrial Average gained 613.92 points, or 1.2%, to finish at 52,208.06, while the S&P 500 advanced 1.7% to 7,437.63.

Why AI rally is bad news for India?

The weak reaction reflects investor concerns over Indian IT companies' heavy dependence on discretionary technology spending by global clients, particularly in the US. Any indication that enterprises are delaying software projects or diverting budgets towards AI hardware raises fresh concerns over growth prospects for software services exporters.

The development comes at a time when the Indian IT sector is already facing multiple headwinds. Stocks have remained under pressure this year amid subdued discretionary demand, slower deal closures and concerns that AI-driven automation could reduce demand for traditional IT services.

Although the U.S. Federal Reserve left interest rates unchanged, investor concerns intensified after the CME FedWatch Tool indicated that 63% of traders expect the central bank to raise rates at its next meeting. Higher U.S. interest rates are typically negative for Indian IT stocks as they can curb client technology spending and compress valuations.

Read more: Microsoft CEO Satya Nadella's warning on AI: Companies that 'outsource thinking' may not survive

What are analysts saying on IT stocks?

International brokerage firm Jefferies in a recent report said its interactions with more than 50 FPI investors point to a positive shift in sentiment towards India as concerns around the AI trade grow.

FPI flows have turned positive, while economic and corporate data points have also surprised on the upside. With IT services stocks bearing the brunt of AI-related concerns, the brokerage said the pause in the AI trade could create room for a tactical recovery in the sector. It has therefore closed its longstanding underweight (UWT) call on IT services by adding Infosys.

The IT sector has declined 25% year-to-date, with the top four IT majors—TCS, Infosys, HCL Tech and Wipro—down around 35-50% from their peaks over the past two years and trading at 13-17x PEs. While revenue growth for IT stocks is expected to remain in the low-to-mid single digits over FY26-28E, Jefferies believes a reversal in the AI trade could drive tactical upside, particularly after the sector's sharp decline.

The brokerage also noted that negative stock reactions to adverse sector news have become much softer, indicating a potential bottom. Jefferies has added Infosys and increased its weight in Coforge in its model portfolio, taking its overall IT sector allocation to neutral. The move has been funded by trimming weights in power, realty and hospitals, which remain large overweight positions.

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