The Nifty IT index has declined nearly 17 per cent on a year-to-date basis, making it the weakest-performing sectoral index during the period under review. According to ACE Equity data, the decline has wiped out around ₹6.37 trillion in investor wealth.

Strong earnings visibility, specialised business models and AI-linked growth help select IT stocks outperform a weak sector

India's information technology sector is going through a sharp phase of divergence in 2026, with the broader IT pack facing significant selling pressure while a handful of companies continue to deliver strong stock-market performance.

Major IT services companies have borne the brunt of the sell-off. Shares of Wipro, Infosys and Tata Consultancy Services (TCS) have fallen between 26 per cent and 30 per cent.

However, Coforge and Oracle Financial Services Software (OFSS) have taken a sharply different trajectory.

Coforge has gained around 20 per cent, while OFSS has surged approximately 58 per cent during the period highlighted in the report. Tech Mahindra has also managed to remain in positive territory, gaining around 2.9 per cent.

The contrasting performance highlights a growing trend in the IT sector: investors are increasingly rewarding visible earnings, differentiated business models, strong deal pipelines and exposure to structural technology spending, rather than buying the sector indiscriminately.

Disclaimer: The views, targets and outlook cited in this article are those of the respective analysts and brokerages. They are not recommendations or endorsements by Smart Investment. Investors should undertake independent research and consider their investment horizon and risk appetite before making investment decisions.

IT sector faces a difficult 2026

AI disruption and weak discretionary spending weigh on sentiment

The sharp correction in IT stocks has been driven by concerns about the impact of artificial intelligence on traditional technology-services businesses.

AI-powered automation has raised questions over whether enterprises will require the same amount of conventional software development, testing, maintenance and support services in the future.

At the same time, uncertainty around discretionary technology spending has made large global clients more selective about new projects.

This has created concerns around revenue growth for companies dependent on traditional IT outsourcing.

Investors are consequently looking more closely at the nature of each company's revenue rather than simply its total exposure to technology spending.

Coforge and OFSS emerge as major outliers

The performance of Coforge and OFSS demonstrates that the IT sector's problems are not uniform.

Analysts believe both companies have benefited from stronger company-specific earnings drivers.

For OFSS, its product-led business model and strong position in banking technology provide a different earnings profile compared with conventional IT-services companies.

For Coforge, strong deal momentum, acquisitions, execution capabilities and increasing exposure to AI, data and cloud services have supported investor confidence.

This differentiation has helped both stocks withstand the broader IT-sector correction.

OFSS benefits from specialised banking technology

Product-led model provides earnings visibility

Oracle Financial Services Software operates in a specialised segment of the financial technology ecosystem.

Its products are used by banks and financial institutions, making the company's business closely linked to long-term technology modernisation in the financial-services industry.

This is different from a conventional IT-services model where revenue can be more dependent on discretionary project spending.

The product-led nature of OFSS's business and its recurring revenue characteristics provide greater visibility into future earnings, according to Kunal Bajaj, research analyst at Choice Institutional Equities.

Banking technology remains a structural opportunity

Banks globally continue to invest in digital transformation, modern core-banking platforms, payments infrastructure, risk management and regulatory technology.

These investments are often strategic rather than purely discretionary because financial institutions need to maintain secure, scalable and compliant technology infrastructure.

This provides OFSS with a relatively durable addressable market.

As banks continue migrating towards modern platforms and expanding digital services, specialised financial software providers could benefit from sustained technology spending even when broader enterprise IT budgets remain under pressure.

OFSS reports sharp Q1FY27 growth

Profit more than doubles

OFSS delivered a strong financial performance in the first quarter of FY27.

Consolidated net profit increased 120.52 per cent to ₹1,415.5 crore.

Revenue from operations rose 68.73 per cent to ₹3,125.2 crore.

The sharp increase in revenue and profit has strengthened the company's earnings profile and provided an important fundamental reason behind its stock-market outperformance.

The performance also highlights the difference between OFSS and several traditional IT-services companies currently dealing with slower growth expectations.

Strong earnings can support premium valuations

When a company consistently delivers strong earnings growth and predictable cash flows, investors may be willing to assign a higher valuation multiple.

However, this relationship works in both directions.

Once a strong earnings trajectory becomes embedded in the share price, the company must continue delivering exceptional results to justify the premium valuation.

This means OFSS's future share-price performance will increasingly depend on whether earnings growth remains strong enough to support current market expectations.

Coforge builds strong growth visibility

$2.23 billion executable order book

Coforge entered FY27 with a record executable order book of $2.23 billion.

The order book increased 44 per cent year-on-year, providing substantial visibility into future revenue.

The company also recorded $691 million in total contract value wins during Q1, including four large deals.

For an IT-services company operating in a volatile demand environment, strong contract wins can provide greater confidence around future revenue.

However, investors will continue to track how quickly these contracts are converted into actual revenue.

Acquisitions expand Coforge's capabilities

SLK Global, Cigniti and Encora strengthen the platform

Coforge has used acquisitions as an important part of its growth strategy.

The acquisitions of SLK Global, Cigniti and Encora have expanded its scale, capabilities and customer relationships.

Sunny Agrawal, head of fundamental research at SBI Securities, said the company has demonstrated an ability to integrate acquisitions and unlock value.

Successful integration can provide several advantages, including cross-selling opportunities, greater scale, access to new customers and technology capabilities.

However, acquisition-led growth also carries execution risks.

Investors will therefore monitor whether acquired businesses deliver expected synergies and whether the company's balance sheet remains strong while pursuing expansion.

AI could become a growth driver for Coforge

86% revenue linked to AI-led engineering, data and cloud services

Artificial intelligence is often viewed as a threat to traditional IT-services companies, but Coforge is positioning itself to benefit from AI-driven enterprise transformation.

According to Choice Institutional Equities, approximately 86 per cent of Coforge's revenue is linked to AI-led engineering, data and cloud services.

This positioning could help the company participate in the next wave of technology spending.

As enterprises move from AI experimentation towards large-scale implementation, they require data infrastructure, cloud migration, engineering support, application modernisation and AI integration.

Companies capable of providing these services could potentially benefit from the increase in AI-related spending.

AI creates winners and losers within IT

The current IT correction does not necessarily mean technology spending is disappearing.

Instead, spending priorities are changing.

Enterprises are increasingly directing budgets towards:

Artificial intelligence
Cloud computing
Data infrastructure
Cybersecurity
Automation
Digital engineering
Application modernisation
Analytics
Enterprise software

At the same time, traditional maintenance and lower-value technology work could face increasing automation.

This creates a significant difference between IT companies based on the nature of their services.

Companies positioned towards high-value technology transformation may therefore outperform businesses with greater exposure to commoditised services.

Why large IT companies are under pressure

Scale alone is no longer sufficient

Large IT companies have historically benefited from scale, large client relationships and diversified geographic exposure.

However, the current market environment is placing greater emphasis on growth quality.

When enterprise clients become cautious, large technology-services contracts can take longer to close.

At the same time, AI-driven productivity improvements could potentially reduce the amount of manpower required for certain projects.

This has led investors to reassess growth expectations for some of India's largest IT companies.

The decline of 26–30 per cent in Wipro, Infosys and TCS reflects this broader change in investor sentiment.

Investors increasingly favour earnings visibility

According to SBI Securities' Sunny Agrawal, investors have increasingly preferred businesses with predictable earnings, strong balance sheets and lower execution risk.

This preference becomes particularly important during uncertain economic conditions.

Companies with recurring revenues or strong executable order books can provide investors with greater confidence around future cash flows.

OFSS offers relatively high visibility through its product-led business model, while Coforge benefits from its large executable order book and strong deal wins.

Valuation becomes the next challenge

Outperformance raises expectations

The biggest risk for both stocks after their strong rallies is that investor expectations have risen significantly.

OFSS has gained approximately 58 per cent, while Coforge has risen around 20 per cent during the period cited.

Such outperformance can lead to richer valuations.

Analysts have therefore cautioned that sustaining the same pace of share-price appreciation will become increasingly difficult.

Future gains will need to be supported by continued earnings growth rather than simply a re-rating of valuation multiples.

Coforge: Key factors to monitor

For Coforge, investors should focus on the following indicators:

Large-deal conversion

The company's $2.23 billion executable order book provides visibility, but actual revenue conversion remains critical.

Organic growth

Sustaining strong organic growth alongside acquisitions will determine the quality of its expansion.

Encora synergies

The successful integration of Encora and the realisation of expected synergies will be important.

Margin expansion

Revenue growth must translate into stronger profitability for the stock's valuation to remain supported.

AI and cloud demand

Increasing enterprise spending on AI, data and cloud services could provide an important structural growth opportunity.

OFSS: Key factors to monitor

OFSS investors will need to focus on a different set of business indicators.

Banking technology spending

Continued investment by banks and financial institutions will remain a major demand driver.

Deal momentum

New contracts and implementation activity will indicate whether the current growth trajectory is sustainable.

Product adoption

Expansion of its core banking software franchise will be important for future revenue growth.

Recurring revenue

Stable recurring revenue can provide earnings visibility during periods of uncertain discretionary spending.

Profit growth

Following the sharp Q1FY27 increase in profit, investors will monitor whether the company can maintain a high growth trajectory.

Tech Mahindra also shows relative resilience

Tech Mahindra has gained around 2.9 per cent despite the broader IT-sector correction.

Its relative resilience indicates that the market is beginning to distinguish between companies based on their individual recovery prospects.

For Tech Mahindra, investors will continue to monitor demand recovery, deal wins, margins and execution.

Its performance also reinforces the broader theme of selective positioning within the technology sector.

Can the outperformance continue?

Analysts believe Coforge and OFSS remain relatively better positioned than many traditional IT-services companies.

However, the magnitude of their recent outperformance makes future gains increasingly dependent on actual earnings delivery.

For Coforge, large-deal conversion, organic growth, AI-related demand, Encora synergies and margin expansion will remain central.

For OFSS, banking technology spending, deal momentum, recurring revenues and product monetisation will be key.

The companies will need to deliver strong operational performance to maintain investor confidence.

September could remain a stock-picker's market

The IT sector may continue to experience significant performance differences between individual companies.

A broad-based recovery in technology spending could benefit the entire sector, but investors are likely to continue favouring companies that demonstrate superior growth visibility.

Conversely, any further deterioration in global technology budgets or acceleration in AI-led automation could increase pressure on traditional IT-service providers.

The result could be continued dispersion in stock performance.

Global demand remains a key variable

Indian IT companies remain heavily linked to overseas technology spending, particularly in the US and other developed markets.

Therefore, global economic growth, enterprise technology budgets, interest rates and corporate confidence will remain important.

A slowdown in the global economy could lead to delays in discretionary technology projects.

On the other hand, an increase in AI, cloud and digital-transformation investment could create new opportunities for specialised Indian technology providers.

Currency movements can influence IT earnings

The rupee-dollar exchange rate is another important factor for Indian IT companies.

Because a significant portion of revenue for many IT firms comes from overseas markets, currency movements can influence reported revenue and profitability.

A weaker rupee can provide a translation benefit to exporters, although hedging strategies and wage and operating costs also influence the final impact on margins.

Investors should therefore consider currency trends alongside demand and deal momentum.

Cash generation and balance sheet remain important

In the current uncertain environment, strong balance sheets can provide companies with greater flexibility.

Healthy cash generation allows businesses to invest in new technologies, pursue acquisitions, return capital to shareholders and withstand periods of weaker demand.

This is particularly relevant for companies pursuing acquisition-led expansion.

Investors should therefore examine free cash flow, net cash position, acquisition spending and capital allocation alongside revenue and profit growth.

What investors should watch

The following indicators are likely to determine whether Coforge and OFSS can maintain their relative outperformance:

Quarterly revenue growth
Operating margin trajectory
Large-deal wins
Order-book growth
Deal conversion
AI-related revenue
Cloud and data spending
Banking technology demand
Recurring revenue growth
Acquisition synergies
Free cash flow
Global technology spending
Rupee-dollar movement
Valuation multiples

A combination of strong earnings growth and reasonable valuations would provide the most supportive environment for sustained outperformance.

Sector recovery may not lift every stock equally

Even if the Nifty IT index eventually recovers, individual companies may continue to perform differently.

Companies with weak growth visibility may lag even during a sector recovery, while businesses with strong structural growth drivers could continue attracting capital.

This suggests that investors should not assume that a falling IT sector automatically represents a buying opportunity across all technology stocks.

The current cycle is increasingly about identifying businesses that can adapt to changes in technology spending.

AI transition could reshape India's IT industry

The rise of AI is likely to change the competitive structure of India's IT industry over the coming years.

Companies that successfully move from manpower-driven services towards AI-enabled engineering, platforms, cloud and data services could potentially protect or increase their value proposition.

At the same time, businesses that fail to adapt could face pressure on billing rates, employee utilisation and revenue growth.

Coforge's increasing exposure to AI-led engineering and cloud services puts it on one side of this transition, while OFSS's product-led banking software model provides a different form of technology differentiation.

Market Outlook

The sharp divergence between Coforge, OFSS and the broader IT sector highlights a major change taking place in India's technology market.

While the Nifty IT index has declined nearly 17 per cent YTD and erased approximately ₹6.37 trillion in investor wealth, Coforge and OFSS have delivered gains of around 20 per cent and 58 per cent, respectively.

The outperformance reflects stronger company-specific fundamentals rather than a broad IT-sector recovery. OFSS benefits from its product-led banking technology franchise, recurring revenue characteristics and strong Q1FY27 performance, while Coforge combines a $2.23 billion executable order book, strong deal wins, acquisition-led expansion and significant exposure to AI, data and cloud services.

However, the next phase could be more demanding. After substantial share-price gains, valuations and investor expectations have increased. Continued outperformance will therefore require consistent earnings delivery, strong deal conversion and fresh growth catalysts.

For the broader IT sector, the outlook remains selective. AI is simultaneously creating disruption and new technology spending opportunities, making business-model differentiation increasingly important. Companies with strong balance sheets, visible earnings, specialised products, AI capabilities and sustainable cash generation are likely to remain better positioned.

The key takeaway for September and the quarters ahead is that IT may remain a stock-picker's market, with earnings visibility and the ability to adapt to AI-driven technology spending likely to determine which companies outperform.