IT stocks rally: Why are Infosys, TCS and Tech Mahindra shares surging despite AI disruption fears?

IT stocks staged a sharp rebound on Monday, with shares of Infosys, TCS, Tech Mahindra and Persistent Systems climbing up to 5% as investors returned to the sector after months of AI-led pessimism and ahead of a closely watched US Federal Reserve meeting.The Nifty IT index climbed around 3% to 29,905 in morning trade, taking its two-day gain to nearly 4% and emerging as the top-performing sectoral index, according to an ET report.The rally comes after a sharp selloff earlier this year triggered by advances in artificial intelligence, including AI startup Anthropic's Claude Cowork agent, which can automate tasks across legal, sales, marketing and data analysis functions."We call it the ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks," Bloomberg had quoted Jeffrey Favuzza from the equity trading desk at Jefferies as saying.However, investors have increasingly begun reassessing the sector's valuations, leading to fresh buying interest in IT counters.Brokerage Nuvama said the sector could be setting up for a recovery rather than facing an existential threat from AI."We see no existential threat from Gen-AI," the brokerage said, arguing that enterprises would continue to require a "system integrator" to customise plug-and-play AI and software tools for complex technology environments and to take ownership when "the system fails at 2 am."The latest round of buying has also come ahead of the US Federal Reserve's policy meeting next month, which will be the first under Chair Kevin Warsh. US President Donald Trump had selected Warsh partly on expectations that he would support lower borrowing costs to stimulate economic growth, although persistent inflation has raised questions about the pace of any policy easing.According to Kunal Kamble, Senior Technical Research Analyst at Bonanza, the Nifty IT index has rebounded from a key support zone, indicating the possibility of a short-term recovery."On the hourly time frame, the index is currently forming an inverse Head and Shoulders pattern. A decisive breakout is seen above the neckline of this pattern and has triggered further upside momentum in the index. Such a move is likely to positively impact heavyweight IT stocks that share a high correlation with the index, including Infosys, Tata Consultancy Services, and HCL Technologies," he said.Kamble said sustaining above the 29,650 level could open the door for a move towards the 31,280 zone. However, he cautioned that the current recovery appears to be a retracement within the broader trend rather than a complete trend reversal."Aggressive or high-risk traders may consider short-term trading opportunities in select IT counters, provided the index maintains strength above key support levels. On the downside, a breach below 28,800 could once again invite selling pressure across the Nifty IT index and associated IT stocks, potentially weakening the ongoing recovery structure," he added.Persistent Systems emerged as the top gainer on the Nifty IT index, rising nearly 5%.Infosys shares jumped almost 4%, while Mphasis, Tech Mahindra, LTIMindtree and Coforge gained more than 3% each.Tata Consultancy Services (TCS) and Oracle Financial Services Software (OFSS) rose around 2% each, while HCL Technologies and Wipro advanced about 1% each.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)