# IT Stocks Recover Most Losses on Valuation Bet and Anti-AI Trade > Source: > Published: 2026-08-14 15:10:14+00:00 **August 14, 2026**, (Inside AI) — Indian IT stocks have staged a sharp recovery since early July, clawing back much of their first-half losses as investors treat the sector as a cheap hedge against overheated global AI bets. The benchmark **Nifty IT index** was down **32%** for the year on **July 1**. It has since halved that decline to roughly **17%**. Bellwether **TCS** is now down **26.5%** in **2026**, versus **38%** at the start of July. **Tech Mahindra** has turned positive for the year, up **2%**, while **Coforge** has surged to a **9%** gain after having slumped **35%** at its low. The rebound comes despite a cautious near-term outlook from IT services firms. April-June quarter earnings cited AI-related revenue deflation, subdued spending by US clients, and uncertain visibility. Yet profits, margins, and deal wins held up better than feared. “The market has already discounted the news (of uncertain outlook projected by companies in Q1). There is no major negative news in sight currently, like a new model from Anthropic, which will incrementally impact IT services,” said **Sumit Pokharna**, an analyst tracking the sector at **Kotak Securities**. “Most mutual fund guys still have a decent exposure in the IT sector. They realised that this is a good time to average (by accumulating more IT stocks), and they came on news channels and highlighted that they are looking to add more positions in IT because they believe most of the concerns are already priced in,” he added. Valuations are a key driver. The **Nifty IT** now trades at about **19-20 times** one-year forward earnings, well below its five-year average of **25-27 times**. That discount has drawn domestic institutions back in. Mutual funds, insurers, and pension funds raised stakes in **Wipro** by **3 basis points** and in **TCS** by **6 basis points** during the June quarter, exchange data shows. Foreign investors are also returning. **FIIs** bought Indian equities worth **$2.1 billion** in July, ending four months of selling. Within IT services, they purchased **$352 million** of shares in July, after dumping **$788 million** the previous month. Over the prior five months, FIIs had sold **$3.5 billion** of Indian IT stock. ## The anti-AI trade finds a home in Indian IT The rally coincides with a crash in the AI-heavy South Korean market. The **Kospi index** began falling in late June and is now down about **23%** from its peak. Investors looking to rotate out of expensive AI names have found Indian IT a convenient counterweight. “We have possibly seen FIIs also buy IT stocks as a strong bet against AI as they returned to India. It's early to say if it's a definitive change in trend or a short-term bet, with AI productivity still at a very nascent stage. We will have to wait and watch if more investors bet against AI, or if AI will surge again,” a fund manager tracking the sector at a domestic AMC said. The trend is global. **Cognizant** shares jumped around **11%** after its June quarter results even as the company cut its **2026** growth outlook, and the stock has gained **44%** since July. **Accenture** and **Capgemini** have risen **24-42%** in the same period. Major fund houses such as **Motilal Oswal**, **ICICI Prudential**, and **SBI MF** have turned more positive on IT services, citing a strong risk-reward profile and a hedge against exorbitant global AI valuations. Still, the recovery is not without risk. A **Kotak Institutional Equities** report last week noted that AI deflation is already visible in lower volumes for software development and higher pricing pressure in managed services deals. “Indian IT has started to feel the impact. The headwinds are manifesting as lower volumes/spending in software development programs and higher pricing pressure in managed services deals. These impact topline growth for the industry,” the report said. Most experts view the rally as a short-term trade built on reasonable valuations and an attractive risk-reward profile. The longer-term outlook remains clouded by earnings growth, AI's impact, and whether Indian IT firms can add meaningfully to the AI value chain.