Indian IT Stocks Gain Favor As Global AI Spending Pressures Rise

Indian IT firms are emerging as a safe trade as global technology giants face rising capital expenditure burdens on artificial intelligence infrastructure. Brokerage firm Anand Rathi notes that investors are favoring asset-light businesses with strong free cash flow generation.

Market Pressures

Global AI infrastructure costs are growing rapidly, creating financial pressures for hyperscalers. Microsoft was the only major hyperscaler to report positive free cash flow in the third quarter, while peers faced mounting pressure. At the same time, cloud services including AWS, Azure, and Google Cloud saw year-on-year growth of roughly 39%, 48%, and 103%, with aggregate cloud backlogs topping $1.8 trillion. Anand Rathi estimates that combined capital expenditure by hyperscalers will near $730 billion, representing growth of over 80% year-on-year.

Top Brokerage Picks

Against this backdrop, capital is rotating toward Indian IT services firms, which trade at 16 times and 15 times their estimated earnings for fiscal years 2028 and 2029. These stocks offer free cash flow yields of 6.5% and 7.2%, alongside dividend yields of 5% and 5.4%. Anand Rathi specifically favors Tech Mahindra, LTIMindtree, and Mphasis. For Tech Mahindra, the margin-repair phase under CEO Mohit Joshi is complete, backed by $4.3 billion in last-twelve-month net new total contract value. LTIMindtree benefits from strong execution under CEO Venu Lambu and the Randstad acquisition, while Mphasis is supported by its high banking and financial services exposure.

Context

When global technology giants face heavy spending burdens on new infrastructure, investors often look to alternative markets with steadier cash returns and lower capital requirements. Indian IT companies have traditionally offered reliable cash flow and dividend yields, making them a common destination during periods of tightening global tech budgets.