‘Soft’ware Stocks Have Taken a Hard Knock: What’s the Future for IT Stocks?

Indian equities have largely held a constructive tone over the past five sessions, with Thursday standing out as the lone weak patch. The Nifty 50 managed to reclaim its 50-day moving average, a level that had repeatedly capped upside attempts. But the real test began near 26,000. Each push towards this round number invited supply, and each rally was met with swift profit booking. In hindsight, that behaviour was a warning: the market was not ready to price in a clean breakout just yet, despite the broadly supportive setup.[EasyDNNnews:PaidContentStart]

Thursday’s decline, a little over 0.5 per cent, was driven disproportionately by IT stocks. The Nifty IT index slipped to a nine-month low, and the weakness is not confined to India. Global software names have been correcting, and domestic IT followed through as sentiment soured. Year to date, the Nifty IT index is down roughly 12.5 per cent, with heavyweights such as TCS and Wipro printing fresh 52-week lows. When a sector of that size derates, it does not stay a contained story for long, it spills into headline indices.

The deeper debate in IT is no longer about quarterly demand; it is about the shape of the next cycle. Investors are trying to judge whether generative AI is simply another transition, like Y2K or cloud, or whether it changes the economics of services more fundamentally. One concern is that the sector is entering this shift as an incumbent, not a disruptor, while AI’s scope is broader, spanning coding, consulting, workflows and decision making. Yet the nearterm revenue pool from AI led work may still be too small to offset pricing pressure in traditional services. The counter view is equally important: enterprise platforms and mission critical workflows are not replaced overnight, and the immediate impact of AI may show up more in productivity than in displacement. That is a double-edged outcome. Higher productivity helps margins and delivery, but it can compress billing intensity and weaken pricing power if clients demand a share of the efficiency gains. The question the market is wrestling with is straightforward: does AI reduce revenue per unit of work faster than it creates new work, or does it ultimately reset the growth curve without breaking it? For now, uncertainty on that front continues to hang over the space.

Away from IT, the earnings season is approaching the finish line, with only a handful of companies left to report. The broader print has been steady rather than spectacular, with leadership coming from financials, pharma, and autos including auto ancillaries. Autos have been a clear standout, reflected in the Nifty Auto index rising about 3.6 per cent week to date. PSU Banks have also carried strong momentum. The Nifty PSU Bank index is up close to 4 per cent week to date and has pushed to fresh highs, helped by State Bank of India’s strong Q3FY26 numbers. The post results rerating has been meaningful enough for SBI to become the country’s fourth largest company by market capitalisation, overtaking ICICI Bank.

Looking ahead, the setup argues for balance rather than boldness. The 26,000 zone remains the immediate resistance, and until the index proves it can hold above resistance, it may be premature to chase aggressive longs. Existing positions can still be carried, but only with disciplined trailing stops that protect gains without forcing premature exits. Fresh opportunities are likely to be stock specific, led by earnings outcomes and sector rotation. The priority for the coming week should be risk control, selective participation, and a close watch on how the market behaves each time it approaches that resistance band.

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