Is India’s Beaten-Down $315 Billion Sector Primed to Rebound?
We’ve seen good news for Indian equities, particularly IT providers. But with rates about to rise, here’s the smart course for playing any rebound.
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There’s been some good news for Indian stocks in the last few days. And they sorely need some.
Accenture (ACN), in reporting earnings last week, set off a rally in India’s information/technology (IT) stocks. While Accenture is now based in Ireland, and spun out of Arthur Andersen, its largest base of operations is in India, with 350,000 employees, nearly half its total headcount.
Why Slim Outperformance Is Exciting
It’s also seen as a standard bearer for the Indian IT industry. The $315 billion sector has been suffering the fallout from the ramping up of AI. Investors are betting that AI will replace some outsourcing functions, while clients of the Indian IT operators are also adjusting or slowing their tech spend to figure out how to implement AI.
Accenture actually only slightly outpaced forecasts, beating sales estimates by 2.6% and earnings by 2.4%, but the company noted that consulting revenue is rising 7% in local currency, up from just 3% for the fiscal 2026 year that ended in August.
Accenture shares, which had lost around one-third of their value in 2026, surged as much as 24.1% on October 1, ending on a 15.8% gain, their best-ever one-day rise.
IT Sector’s Synchronized Rise
The sector is getting a small but synchronized rise. There’s been a nudge higher of 1.0% to 2.0% this week for IT heavyweights such as Tata Consulting Services (TTNQY) (NSE:TCS), Infosys (INFY) (NSE:INFY) and Wipro (WIT) (NSE:WIPRO) and a slightly bigger rise of around 4.0% for the likes of Mphasis (NSE:MPHASIS) and Persistent Systems (NSE:PERSISTENT).
While we can’t expect a rapid runup in Indian IT stocks, it looks like the market has bottomed. Their clients are normalizing their tech budgets, which could result in gradual growth. The companies themselves are also grappling with how to implement AI to their benefit rather than their detriment.
Tata Consulting Services also in late August inked a five-year, $1.5 billion deal to revamp the IT and digital architecture of Porsche, while also buying the carmaker’s 4,500-employee IT consulting arm for $373 million.
Large Selloff for Indian Markets in 2026
But Indian equities still face plenty of headwinds. It has been a punishing year so far on the Mumbai exchanges.
The Nifty 50 is down 12.9% year to date, while the Sensex is off 14.2%. India-tracking exchange-traded funds are down similar amounts, with the largest, the iShares MSCI India ETF (INDA) down 13.5% so far in 2026.
The IT sector has led the way south. The India-listed Nippon India ETF Nifty IT (NSE:ITBEES) is down a punishing 25.5% in 2026, suffering selloffs in both Q1 and Q3.
The sector concerns surrounding IT spending add to India-wide issues like the high price of oil. Geopolitical tension triggered the Q1 selloff, and the resumption of conflict in Q3, pushing oil back above $100 per barrel, raised the energy red flag again.
India would normally get some 65% of its oil from the Middle East, much of it via the Strait of Hormuz. It is now under pressure from the U.S. government after offsetting those flows with supply from Russia.
Indian equities suffered one of the sharpest selloffs when the Iran conflict began, with a 14.4% fall in the Nifty 50. Only stocks in high-flying South Korea, troubled South Africa, and both the Philippines and Indonesia suffered more.
Second Oil-Price Selloff
The IT sector in particular experienced a sharper selldown with the resumption of conflict. The Q3 decline of 13.5% for the sector was more than double the initial 6.4% selloff, when heavy industry lurched lower and it initially appeared services might be spared.
Ultimately, higher energy costs are feeding through to higher input costs across the board. The central Reserve Bank of India (RBI) is due to announce its key policy repurchase rate on Wednesday, and is likely to implement its first rate rise in more than three years, budging the repo rate up by 25 basis points to 5.25%. The RBI was cutting rates all of last year, and last lifted rates in January 2023.
The backdrop is inflation that came in at 4.8% in August, above the central bank’s 4.0% target, although still within its tolerance band of 2.0% to 6.0%.
The U.S. software sector has recovered from the February software-and-services selloff, also prompted by the rise of AI. It is possible that we will see a recovery in India’s IT sector as the service providers and their clients adjust and implement AI.
Nomura cites India’s IT services sector as one of its bullish calls heading into year end. It expects a “medium-term revenue uplift from AI implementation mandates,” much like Tata’s deal with Porsche. It’s also constructive on India’s financial sector, auto-industry ancillary manufacturers, engineering and manufacturing, and Indian drugmakers.
We may be seeing the bottoming of Indian equities, with the potential for the biggest rebound in the I/T services sector — the biggest loser through Q3, with shares down on average 30.1%. But investors looking to pick up the IT providers as value plays should watch for further evidence along the lines of the good news from Accenture before believing the rally can extend for real.
