IT stocks extended their rally for a second straight session on Wednesday, helping lift the broader market as investors continued to rotate into the sector ahead of the US Federal Reserve’s policy decision later in the day.
The BSE Sensex climbed 758.30 points, or 0.99%, to 77,524.22 in early trade, while the NSE Nifty50 gained 217.20 points, or 0.91%, to 24,202.55 as of 9:55 am.
Technology shares once again led the gains. The Nifty IT index jumped 2.45%, taking its gains over the last four sessions to nearly 11%.
Among the biggest gainers were Coforge, which surged 4.39%, Infosys (3.26%), LTIMindtree (2.68%), Persistent Systems (2.65%), TCS (2.55%) and Oracle Financial Services Software (2.35%). Wipro, Tech Mahindra and HCLTech also traded firmly in the green.
The latest rally is being driven by two key factors—a global shift towards Indian IT companies as AI-linked stocks come under pressure, and expectations that the US Federal Reserve will keep interest rates unchanged.
INDIAN IT EMERGES AS A SAFE HAVEN
The first trigger remains the same one that sparked Tuesday’s rally.
For nearly two years, Indian IT companies were criticised for “missing the AI bus” as global investors poured billions of dollars into AI chipmakers, semiconductor companies and hyperscalers building data centres.
That narrative is now beginning to reverse.
Technology stocks across South Korea, Japan and Taiwan have witnessed heavy selling as investors question whether the massive investments in AI infrastructure will generate adequate returns. Concerns over stretched valuations, rising competition from Chinese companies and slowing returns on AI spending have prompted investors to reduce exposure to hardware-focused technology stocks.
Unlike global AI leaders, Indian IT companies are largely services businesses. Companies such as TCS, Infosys, HCLTech, Tech Mahindra and Wipro generate revenues from software services, cloud migration, digital transformation, consulting and enterprise technology rather than manufacturing AI chips or investing billions in AI infrastructure.
Because of this asset-light business model, they are relatively insulated from the ongoing correction in AI hardware stocks. Investors are therefore rotating into Indian IT as a relatively defensive technology play.
Ironically, what was once seen as India’s biggest weakness in the AI race is now emerging as one of the sector’s biggest strengths.
WHY THE FED DECISION MATTERS
The second reason behind the rally is the US Federal Reserve’s policy decision due later on Wednesday.
According to the CME FedWatch Tool, markets see around a 70% probability that the Fed will keep interest rates unchanged, while there is roughly a 30% chance of a 25-basis-point hike. However, investors continue to expect the central bank to resume tightening later, with Reuters reporting that markets are pricing in about a 76% probability of a rate hike in September.
For Indian IT companies, the Fed’s decision is closely watched because the United States accounts for a significant share of their revenues. TCS, Infosys, HCLTech, Wipro and Tech Mahindra derive a large portion of their business from American enterprises across banking, healthcare, retail and manufacturing.
If the Fed pauses, borrowing costs in the US remain stable, easing pressure on corporate spending. That increases the likelihood that companies will continue investing in digital transformation, cloud migration, cybersecurity, data analytics and AI implementation projects—areas where Indian IT firms generate most of their revenues.
A steady interest rate environment also tends to improve investor appetite for equities and emerging markets. Lower uncertainty around US monetary policy supports foreign portfolio flows into markets such as India and generally improves valuations for export-oriented sectors like information technology.
However, investors will be paying even closer attention to Fed Chair Jerome Powell’s commentary than the rate decision itself. Any indication that inflation remains sticky or that further rate hikes are likely could weigh on technology stocks globally by raising expectations of tighter financial conditions.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, believes a status quo on rates has already been factored into markets.
“The Fed’s expected policy of holding rates is unlikely to impact the Indian market since it is already discounted by the market. However, if the Fed goes for a surprise early hike, that will have slightly negative implications for Indian markets. Rising yields in the US will drive FIIs towards US bonds and away from emerging market equities,” he said.
For now, investors appear comfortable betting that Indian IT will continue to outperform. With the sector benefiting from both global rotation away from AI hardware stocks and expectations of a stable US interest-rate environment, technology shares remain one of the strongest pockets of the market.
