Shares of Indian software giants started the new year on a roaring note after higher-than-expected sales last quarter surprised investors and helped burnish the outlook for the sector.

Led by industry bellwether Tata Consultancy Services and Infosys, the four key software companies have added about US$22 billion in market value in just two trading sessions since last Thursday (Jan 11), when the earnings season kicked off. A potential revenue rebound and easing global macroeconomic worries have boosted sentiment. 

Shares of Wipro rallied as much as 14 per cent on Monday, their biggest intraday gain since July 2020 before paring gains, as the surprise revenue beat triggered rating upgrades from some brokerages. HCL Technologies surged to a new all-time high, boosted by its forecast for improved revenue growth.

“A change in sentiment is being reflected in management commentary,” said Siddarth Bhamre, head of research at Religare Broking. Companies such as Infosys, which have so far been fairly conservative in their commentary, are now beginning to express optimism, he added.

While global companies’ discretionary spending on technology projects is yet to show firm signs of a pick-up or return to past levels, the companies continue to push ahead with initiatives, in particular the ones aimed at lowering costs and improving efficiencies.

The Indian companies are also looking to promote their capabilities in artificial intelligence (AI) as demand for such services picks up. “Almost every discussion with clients involves some element of generative AI,” Infosys CEO Salil Parekh said on an earnings call on Thursday.

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The improving sentiment is also visible in earnings upgrades on big IT companies. At least six brokerages raised their ratings on Infosys since its results last week, while analysts at JPMorgan Chase upgraded ratings on Wipro’s US as well as India-listed shares.

“I don’t think the estimates are going to be downgraded any further,” Phillipcapital analyst Karan Uppal said. He expects the companies’ earnings to start showing growth in the next fiscal year which starts in April. Bloomberg