Infosys, TCS, and Other Nifty IT Stocks Turn Attractive for High-Risk Investors: Here is Why

The Nifty IT index has been one of the weakest performers in the market over the past year, but this correction has opened a possible contra opportunity for investors willing to take higher risks. With the sector facing several challenges and global uncertainties, valuations have cooled, making the index more appealing for long-term buyers.

Why Has the Nifty IT Index Fallen By Nearly 12%?

Indian IT stocks have been under pressure due to multiple global and industry-specific issues. Slower economic growth in the US, weaker corporate spending on technology, changing visa rules and the rise of global capability centres have all affected demand. Concerns around the impact of artificial intelligence on traditional outsourcing models have also weighed on sentiment.

These factors pushed the Nifty IT index down nearly 20% from its December 2024 peak. Over the last one year, the index has fallen 11.7% while the Nifty 50 gained 12%. Even over a three-year period, IT stocks have delivered lower returns compared with the broader market.

Nifty IT Index is Trading Below its 5Y Average

The sharp decline has brought valuations to more comfortable levels. The Nifty IT index is now trading at a price-to-earnings ratio of around 26 times, below its five-year average. The dividend yield has also improved to about 3%, compared with the Nifty 50’s 1.3%. Several major companies in the index offer even higher yields, making the segment more attractive for value-oriented investors.

Historically, IT stocks have tended to find support at similar dividend yield levels. This makes the current phase a potential entry point for those willing to take a contrarian view.

How Can Investors Benefit By Investing in Nifty IT Stocks?

The index mainly consists of large and liquid companies, including Infosys, TCS, HCL Technologies, Tech Mahindra and Wipro, which together form about 78% of the basket. Adding exposure to the Nifty IT index can also help diversify a portfolio. Nearly three-quarters of the revenue earned by companies in the index comes from the US and Europe, which reduces dependence on domestic economic conditions.

AI: A Challenge and an Opportunity

Artificial intelligence continues to reshape the sector. While automation may reduce some traditional income streams, it is also creating fresh demand for new AI projects. Large Indian IT companies have strong execution capabilities and a long track record of adapting to technological shifts, placing them in a better position to handle this transition.

Read more: Infosys Buyback: How Much Tax Will You Pay on The Buyback Amount?

Conclusion

The Nifty IT index remains suitable mainly for high-risk investors who believe in the long-term potential of the technology sector. Recent underperformance, improved valuations and strong global exposure make it an interesting contra bet for those looking to add variety to their equity portfolios.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.