Nifty IT is set for its best month in six years - Here's what is contributing to it and what lies ahead

The Nifty IT index is the best performing sectoral index for the market in the month of July so far with three more sessions still to go. The index has gained over 16% so far this month, marking its best monthly performance since July 2020, when the index had gone up 22%.

In fact, July has historically turned out to be a positive month for the Nifty IT index, as barring 2025, the index has delivered positive returns every year this month from 2020.

All Nifty IT constituents have delivered positive returns for the month so far. Gains have been led by the beaten down names. Shares of Persistent Systems, HCLTech and LTM have gained between 20% to 25% this month so far, while those of TCS, Tech Mahindra, Coforge, Mphasis and Infosys are up between 10% to 20% for the month.

Wipro and Oracle Financial are the underperformers of the month with gains of 6% each. Oracle Financial though, continues to remain the best performing IT stock on a year-to-date basis, with a 45% advance, while Coforge and Tech Mahindra also turned positive for the year recently.

What Is Contributing To The Nifty IT Rebound?

The global AI trade, the primary reason behind the battering these legacy IT stocks took in the first six months of the year, is now coming under question.

Chip stocks have sold off sharply over the last one month. The KOSPI in South Korea is down 35% from its peak. The Taiwanese Index has also come off 14% from the highs. The Philadelphia Semiconductor Index has corrected over 25% from its peak, while most of the other chip names such as AMD, Micron, Intel, and others have also seen significant selling pressure.

The rotation out of chip stocks has meant that investors are flocking back to the old, beaten down software names, even on Wall Street. Shares of Accenture, Cognizant and Salesforce were up between 5% to 7% overnight. Both Accenture and Cognizant are up over 30% in the last one month. Even the US-listed shares of Infosys (ADR) were up 5.5% overnight, and have risen 15.5% in the last one month.

Coforge Delivering With Numbers

Coforge delivered a strong quarter on Tuesday with the Encora acquisition also starting to contribute to the numbers.

CEO Sudhir Singh, in an interaction with CNBC-TV18, said that financial year 2027 is going to be an "exceptional year" for the company and the upcoming three quarters will also be robust.

The street duly rewarded the numbers and the management commentary as well, with the stock rising 10% during the trading session on Tuesday, outperforming a sluggish market.

What Lies Ahead For Indian IT?

For largecap IT, the turnaround is yet to show up in numbers as Infosys also trimmed the upper end of its revenue growth guidance for the year.

However, barring that, and Wipro's subdued numbers, most of the other results were largely in-line with expectations and with no negative surprises.

In fact, the street is also beginning to warm up to Indian IT, with Jefferies ending its long standing "underweight" stance on the sector and upgrading it to "neutral", while also adding Infosys to its model portfolio and increasing its weightage on Coforge.

The street will now turn its attention back to the US, with Meta, Microsoft, Apple and Amazon reporting their numbers across Wednesday and Thursday. The capex guidance figure will be the most important to watch as a higher spending plan by Alphabet last week had sent shares of the Google-parent tumbling down the next day.