The "Wind of Faith" is blowing towards India! Software giants begin trading independently after poor performance. $4.95 billion in overseas capital returns to the market.

Notice that global fund managers are once again favoring stocks of Indian software exporters, as these companies are transitioning their businesses towards artificial intelligence (AI). Despite the current small scale of revenue from AI-related product development, companies including Tata Consultancy Services Ltd. (TCS), Infosys Ltd., and HCL Technologies Ltd. are showing promising growth trends, exciting analysts and investors. TCS reported a 17% growth in AI product revenue in the three months ending December, while HCL Technologies saw a 20% increase. Data compiled by the Indian National Securities Depository Limited showed that in the first half of December, foreign investors bought IT stocks worth 45 billion rupees (approximately 495 million US dollars), marking the first time since May. This buying activity has proven to be prescient, as the technology stocks index on the National Stock Exchange (NSE) is heading towards its best monthly performance relative to the benchmark index Nifty 50 since November 2024. Aishvarya Dadheech, Founder and Chief Investment Officer of Fident Asset Management, said, "Confidence in business visibility has significantly increased in the market, which makes us feel reassured. This industry is currently in a golden period, and we see it as a tradable opportunity." Indian tech stocks are expected to deliver their best month performance relative to the Nifty index since 2024 Previously, these companies had fallen out of favor with investors due to concerns about their lack of investment in AI capabilities. However, with increased AI investments by TCS and HCL Technologies, and Infosys stating that AI-related customer spending will boost its profit margins, this bearish sentiment is starting to fade. Nevertheless, as these companies adjust costs to comply with India's new labor regulations, the profits of the country's six major IT giants in the three months ending December fell below market expectations. One of Asia's largest IT service companies, Wipro Ltd., saw its stock price plummet by 8% on Monday after warning of a 9% decrease in its order volumes compared to last year. LTIMindtree Ltd.'s stock price declined on Tuesday as its third-quarter profits fell short of analysts' average expectations. Valuations of IT stocks are below long-term average levels "Due to significant differentiation in the growth prospects of IT companies, a 'bottom-up' research approach is more applicable," wrote analysts at Jefferies headed by Akshat Agarwal in a report this week. The firm favors Infosys and HCL Technologies in large-cap stocks, Coforge Ltd. and Mphasis Ltd. in mid-cap stocks, and Sagility Ltd. and Inventurus Knowledge Solutions Ltd. in small-cap stocks. Nevertheless, opportunities in the AI ecosystem and the depreciation of the rupee are benefiting software exporters. From industry bellwethers to smaller peers like LTIMindtree, the latest quarterly earnings conference calls show a common trend: advancing generative AI from the pilot phase to initial production, embedding it into delivery platforms and employee workflows, and prioritizing efficiency-driven application scenarios rather than just AI products. Revenue growth for Nifty IT index constituents is expected to increase from 6.8% in October-December to 8.7% in the fourth quarter. The increase in AI-related spending helps boost profitability in the industry, with the industry's weight in the Nifty 50 index close to 11%. Karthick Jonagadla, Founder of Mumbai-based Quantace Research & Capital Pvt, said, "It is indeed surprising that the performance of all major companies fell short of expectations, but operational performance and AI opportunities are strong enough to reignite hope for the industry."