Legacy Indian IT Stocks Lag AI Rebound as Revenue Concerns Mount

what happened

According to Moody's, the Nifty IT index gained more than 17% in October but has since shed nearly 2% in November. Meanwhile, the Sensex and Nifty climbed over 10% ahead of Diwali, helped by fresh buying from foreign investors. Legacy IT names have stalled even as AI-heavy stocks across Asia dropped sharply: since early October, South Korea's Kospi fell roughly 20%, Taiwan's index about 13%, Japan's Nikkei 10%, and the Nasdaq Composite 6%.

September-quarter results from Indian IT firms show an uneven recovery. Choice Institutional Equities found that mid-tier companies under its coverage grew sequential revenue about 5.4%, while tier-1 firms managed only 1.1%. Clients are delaying decisions and stretching out rollouts, and short AI projects offer less visibility than traditional multi-year deals. Kotak Institutional Equities estimates gross price deflation near 7% and net deflation of 3.5%, as customers push for a share of automation savings when contracts renew.

Kotak expects margins at large IT companies to hold broadly steady, supported by a weaker rupee, but pricing pressure and AI spending could still weigh on profits. It also expects Infosys to cut its FY27 revenue growth guidance to a range of 1.5% to 2.5%.

why it matters

For investors the signal is mixed: the AI sell-off in Asia has not lifted traditional service providers, since their profitability is still in question. The gap between strong deal bookings and slow revenue conversion is the central issue for the sector, and until that conversion picks up, room for re-rating remains limited.

market impact

Indian IT stocks: weak revenue outlook and price pressure weigh on the Nifty IT sector

• ▼Nifty IT pressure down — weak revenue outlook and pricing pressure on client contracts

instruments