IT Rally: Buybacks vs. Risks
Indian IT Stocks Rebound on Buyback Optimism, Defying Analyst Downgrades and Macro Headwinds
Anonymous
Key Points
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ICICI Securities downgraded seven IT stocks (TCS, HCLTech, Wipro, Tech Mahindra, LTM, Hexaware Technologies, LatentView Analytics) and shifted its stance on the sector from neutral to negative, citing protracted low-to-mid single-digit revenue growth and downside risks.
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Infosys and Wipro have completed buybacks recently, fueling optimism about shareholder payouts; TCS remains cash-rich with cash and cash equivalents over ₹50,000 crore as of FY26, and has a five-buyback track record since 2017, with past programs typically priced at 10%–18% premiums to market.
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The rebound followed a four-session slump that pushed the Nifty IT index to a fresh 52-week low around 25,699, before lifting the sector about 4% on July 2.
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Mid-cap IT names led the rally, with Coforge up about 4.35% (around 4% in broader reports) and Mphasis rising roughly 4%, underscoring a broad-based rebound across large- and mid-cap IT stocks.
Indian IT stocks snapped a brutal four-session losing streak on July 2, 2026, as the Nifty IT index surged roughly 4% from a fresh 52-week low of 25,699. NDTV Profit reported that Coforge, Infosys, TCS, Mphasis, and HCL Technologies all posted significant gains, making IT the top-performing sectoral index of the day.
The rebound came after the index had shed nearly 31% year-to-date, erasing an estimated â‚ą19.28 lakh crore in market value from the peaks of the top ten IT firms. Even so, analysts cautioned the bounce may be short-lived, as ICICI Securities simultaneously downgraded seven major IT stocks and turned its sector stance to negative.
Mid-Cap Names Lead a Broad-Based IT Rally
Mid-cap stocks drove much of the July 2 gains. Coforge climbed about 4.62% and Mphasis rose roughly 4.23%, both outpacing large-cap peers. Live India TV reported that Oracle Financial Services and other mid-tier names also joined the surge, signaling broad buying across the sector rather than a narrow, stock-specific move.
Large caps were not far behind. Infosys gained between 4.27% and 5%, while TCS added 2.74%, according to NDTV Profit. The Nifty IT index hit an intraday high of 26,781 — a recovery of roughly 4% from the prior day's low of 25,699. That July 1 close had marked a three-year low for the index.
Buyback Hopes Fuel Investor Optimism Around Cash-Rich Firms
A key driver of the rebound was hope for shareholder payouts. Infosys and Wipro recently completed share buybacks, giving investors a blueprint for what cash-rich peers might do next. Whalesbook noted that TCS holds over ₹50,000 crore in cash and equivalents as of FY26, with a track record of five buybacks since 2017, each priced at a 10%–18% premium to market.
Infosys generated $3.7 billion in free cash flow in FY26, equal to 112.6% of its net profit. With stock prices trading below historical buyback levels, analysts argued that firms have both the means and the incentive to announce fresh programs. That prospect alone was enough to pull buyers back into the market on July 2.
ICICI Securities Downgrades Seven Stocks, Calls Outlook Negative
Even as stocks rallied, ICICI Securities delivered a blunt verdict on the sector. The brokerage downgraded TCS, HCL Technologies, Wipro, Tech Mahindra, LTIMindtree, Hexaware Technologies, and LatentView Analytics in a single move, shifting its sector stance from neutral to negative. Head of Research Pankaj Pandey cited a "challenging demand environment" and protracted low-to-mid single-digit revenue growth as the core reasons.
The downgrade highlighted two structural threats. First, AI disruption risks cannibalizing the traditional outsourcing model, with a potential 10–12% revenue dent over the next three to four years. Second, US discretionary tech spending remains weak. The US accounts for roughly 54% of India's IT exports, so any slowdown there hits the sector hard.
Analysts Split: Technical Bounce or Start of a Real Recovery?
Opinion on the rally's staying power is sharply divided. Ajit Mishra of Religare Broking called the July 2 move a "technical bounce" rather than a fundamental reversal. He said sustainability depends on improved management guidance in the upcoming Q1 FY27 earnings calls. JPMorgan went further, warning of an "L-shaped" growth trajectory and cutting its long-term growth outlook for large Indian IT firms from 7–8% to a "new normal" of 3–4%.
The bull case rests on valuation. As of late June, the Nifty IT index traded at a price-to-earnings ratio of 17.26 — well below its five-year historical average — making it attractive to value investors. NASSCOM estimates that AI-related revenues for the Indian IT industry reached $10–12 billion in FY26, suggesting the sector is pivoting toward new growth areas even as the old model comes under pressure, according to Whalesbook.
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