The Nifty IT index climbed 11.7% during the week ended Friday, October 16, its biggest weekly advance since 2008. Meanwhile, an MSCI index tracking global semiconductor companies had fallen approximately 7.4% during the week, putting software exporters on course for their widest relative outperformance since 2004.
The divergence reflects a significant change in investor sentiment towards technology businesses. Semiconductor manufacturers, previously among the biggest beneficiaries of enthusiasm surrounding artificial intelligence, have faced selling pressure amid concerns about infrastructure spending, financing costs and the sustainability of earnings growth.
Software services companies, meanwhile, have attracted renewed interest following quarterly results that suggested corporate technology expenditure was stabilising. Investors have also responded to comparatively modest valuations after a prolonged period of weakness in the sector.
HCL Technologies helped initiate the recovery after reporting stronger quarterly performance and raising its full-year revenue growth guidance. Its shares surged 8.4% on Tuesday, their biggest single-session advance in more than six years, while the broader technology index gained 5.2%.
The company reported quarterly net profit of approximately Rs51.32 billion, representing growth of 10.9%. Revenue increased 2.3% sequentially to Rs356.2 billion, supported partly by demand for engineering and research services.
HCL Technologies also disclosed advanced artificial intelligence revenue of $219 million, indicating that established outsourcing companies are beginning to generate identifiable income from technology that investors had previously viewed principally as a competitive threat.
Tech Mahindra reinforced the positive sentiment with quarterly revenue growth of 2.4%, reaching approximately Rs161.8 billion. Net profit rose 8.3% to Rs16.1 billion, supported by improvements in its communications business.
Wipro shares also advanced after the company reported quarterly revenue of Rs247.53 billion, exceeding market expectations. However, its deal bookings declined 45% from a year earlier to $2.6 billion, highlighting continued uncertainty surrounding demand for outsourcing contracts.
Wipro projected constant-currency revenue growth ranging from a decline of 1.5% to an increase of 0.5% for the following quarter. Management indicated that two delayed large contracts could be finalised, although their completion remains uncertain.
The contrasting figures illustrate why analysts remain cautious about treating the market recovery as evidence of a sustained improvement across the entire technology services industry.
Investors have nevertheless become increasingly sensitive to the valuation differences between software exporters and semiconductor manufacturers. Shares linked to artificial intelligence infrastructure had commanded substantial premiums based on expectations of expanding demand for processors, memory and computing capacity.
Those assumptions have come under pressure as investors question whether technology companies can generate sufficient returns from enormous commitments to data centres and related infrastructure.
Higher bond yields have compounded those concerns by increasing financing costs for capital-intensive businesses. Inflation pressures in the United States have also revived expectations that monetary policy could remain restrictive, reducing enthusiasm for highly valued growth stocks.
Semiconductor companies including Nvidia, Broadcom and Advanced Micro Devices have faced broader selling pressure, alongside memory manufacturers and businesses supplying artificial intelligence infrastructure.
However, the reversal does not necessarily indicate deteriorating demand for computing hardware. Analysts distinguish between concerns about share valuations and the underlying commercial requirements for advanced processors.
Software exporters face different challenges. Generative artificial intelligence could automate programming, testing and customer support functions, potentially reducing the labour-intensive contracts underpinning traditional outsourcing revenues.
At the same time, businesses adopting artificial intelligence require integration, cybersecurity, cloud management and technology consulting services, creating opportunities for established providers.
The balance between these competing forces remains important for revenue forecasts and profitability expectations.
Friday’s trading demonstrated the strength of the rotation. The Nifty IT index rose 3.9% to close around 31,924 points, while the broader Nifty 50 gained approximately 0.7% to 23,146.
The Sensex finished at 74,729, contributing to the benchmark indices’ strongest weekly performance in six months.
Despite the rebound, technology shares remain below their earlier peaks. Wipro had lost nearly 32% during the year before Friday’s close, compared with a decline of approximately 17% for the broader technology index before the week’s recovery.
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