Indian IT stocks posted sharp gains in Thursday's session, with the Nifty IT index climbing nearly 3% and broad-based buying across large and mid-cap names. Wipro, Infosys, TCS, and Coforge were among the notable movers as investors returned to a sector that had faced prolonged pressure.

The rally reflects a convergence of factors that have been building quietly in the background. Valuations across Indian IT had compressed meaningfully over recent quarters as deal-flow concerns, cautious client spending in the US and Europe, and a hawkish rate environment kept buyers on the sidelines. That setup created room for a sharp re-rating once sentiment shifted.

What Is Driving the Move

Three forces appear to be working together. First, optimism around artificial intelligence is giving the sector a fresh growth narrative. Indian IT firms are increasingly positioning themselves as delivery partners for enterprise AI adoption, and investors are beginning to price in that potential. Second, market sentiment more broadly has improved, pulling risk appetite back toward growth-oriented sectors like technology. Third, valuations had reached levels that looked attractive relative to the sector's longer-term earnings track record, making the stocks easier to own again.

AI is worth dwelling on because it changes the demand story in a meaningful way. Earlier concerns centered on whether AI tools might reduce the volume of work outsourced to Indian IT vendors. The emerging view, which this rally partly reflects, is that large-scale AI deployment inside global enterprises will require significant integration, customization, and ongoing support work, exactly the kind of services Indian IT firms deliver at scale.

Mid-cap names like Coforge joining the rally alongside Infosys and TCS suggests the buying is not just defensive repositioning into the largest, safest names. Broader participation usually signals genuine sector conviction rather than a narrow rotation.

What to Watch Next

The durability of this move will depend on what earnings seasons and management commentary deliver in the coming weeks. Revenue growth guidance and deal-win announcements will be the clearest signal of whether the optimism translating into stock prices is matching what companies are actually seeing from clients.

Client spending decisions in the US, which drives a large share of revenue for most Indian IT firms, remain the key variable. If the macro environment in developed markets stabilizes or improves, discretionary technology spending, which had been deferred through much of the past year, could return faster than consensus expects.

Investors will also be watching how quickly AI-related contracts convert from pilots and conversations into signed, revenue-generating deals. That conversion timeline will separate IT firms with genuine AI pipelines from those with marketing narratives.

For now, the Nifty IT index move signals that the market is willing to look past near-term uncertainty and give the sector credit for a recovery. Whether that credit is earned will become clearer through the next few quarterly cycles.