Foreign funds return to Indian tech stocks on AI growth bets

Core Viewpoint - The Indian software export sector is experiencing renewed interest from global investors, particularly due to advancements in artificial intelligence (AI) capabilities, despite current revenues from AI products being relatively small [10]. Group 1: Market Activity - Foreign funds purchased information technology stocks worth 45 billion rupees ($495 million) in the fortnight ending Dec. 31, marking the first significant investment since May [10]. - The NSE gauge of tech stocks is on track for its best month against the benchmark Nifty 50 since November 2024 [10]. Group 2: Company Performance - Tata Consultancy Services (TCS) reported a 17% increase in revenues from AI products in the three months ended December compared to the prior quarter, while HCL Technologies saw a 20% increase [10]. - Profits at the six largest IT firms in India fell short of consensus estimates in the three months through December due to adjustments made for new labor rules [10]. - Wipro Ltd. experienced an 8% stock decline after reporting a 9% drop in deal wins from the previous year [10]. Group 3: Analyst Insights - Analysts suggest a bottom-up approach is more suitable given the divergence in growth outlook among IT firms, with a preference for Infosys and HCL Tech among large-cap firms [5][10]. - Opportunities in the AI ecosystem and a weakening rupee are seen as favorable for software exporters, with a shared approach among firms to integrate generative AI into their operations [11]. - Topline growth for components of the Nifty IT Index is expected to improve to 8.7% in the fourth quarter, up from a projected 6.8% for October-December [11].