Nifty IT Best Month in Six Years: Was It the Rupee?

Nifty IT’s gain was 18.4% in July 2026, the biggest rise in half a decade, while the former record was a 22.5% jump in June 2020. Investors read about Nifty IT best month and are asking if a weaker rupee was the driver.

The best month was July, not September. In September, the index declined by about 11.2%, ending the month 29.84% below its one year closing high.

This changes the way the rupee argument is read. Individuals who follow IT stocks know that software exporters earn in dollars, so a lower rupee generally helps their rupee revenues. It is natural that many families holding IT shares through funds are linking the rally to the currency.

But the timing of it does not fit well. In May 2026, the rupee hit its all-time low of about 96.97 per dollar, which was two months before the July rally. An oil shock and outflows of capital had been the reason behind that fall.

Business Standard linked the July gain to something different, which it called a "reverse AI trade". In simple words, Indian IT services stocks were rising in that month while global technology stocks were falling sharply.

There will be a need to separate three things here: the effect of the currency, the mood of investors towards AI related companies, and the flows of money from global investors. The sections below take the rupee first, then the global factors, and then the sharp fall in September.

What the rupee did, and when

The rupee faced a tough first half of 2026. In May, it hit the lowest level ever recorded, and India Macro Indicators tie this fall to an oil shock and capital outflows from the country. Importers and families with children studying abroad were among those who felt the strain of a weaker currency during that period.

By June, the rupee had recovered a part of the loss. India Macro Indicators shows that it had rebounded from a low that was roughly 10% below its earlier level, and that it was still down about 6.3% for the year. So the currency was weak in June, but it was no longer at the bottom.

The sequence of events matters here. The lowest record happened in May, while the month that saw the greatest rise in Nifty IT was in July. A currency that had already stopped depreciating and was recovering cannot simply be branded as the fresh reason for the sizeable gain seen in the succeeding months.

The link between the rupee and IT stocks is well known, however. In December 2025, when the rupee crossed 90 per dollar, Business Standard had noted that technology companies typically gain when the rupee depreciates. Their revenues are earned in dollars, while a large part of their costs is paid in rupees.

There was some evidence of this in the market at that time. As of 9 January 2026, Business Standard data showed that Nifty IT had risen 17% since October 2025, against a rise of 6% for the Nifty 50. Investors who held IT shares during those months were receiving better returns than those holding the broader index.

That rally came after a weak period. As of 28 October 2025, Nifty IT was down about 16.5% to 17.5% in calendar 2025, as per Business Standard. An analyst quoted in the same report had said that dollar revenue growth of the IT companies was in the low single digits year on year.

These two sets of data together show that the sector had been under pressure on its business growth, even while the currency was moving in its favour. A weaker rupee improves the rupee value of the same dollar revenue, but it does not add new orders or increase the dollar revenue of the companies.

For the normal individual investor, the picture is therefore mixed. The currency had helped the sector in late 2025, and the rupee reached its record low in May 2026, but the rupee did not go below its May low in July.

Why July looked different

Business Standard described the rally in July as a “reverse AI trade”. Simply put, the global technology stocks were tumbling in that month, while the Indian IT services companies were climbing. The two groups went in opposite directions, and the Indian IT stocks were on the gaining side.

The report does not explain this movement in detail, and the exact reasons for the buying in July have not been stated. Whether investors were moving money from global technology shares into Indian IT services, or whether they were reacting to something specific in company results, is not something the data confirms.

Many families holding IT shares through mutual funds may have noticed the gain in their statements without seeing the reason behind it. What is known is that the index rose strongly, and global technology shares were weak at the same time.

The rupee argument needs to be looked at in this background. India Macro Indicators, in its June 2026 note, says the rupee has been weak partly because the real effective exchange rate (REER) had been running rich. REER is a measure of the rupee's value against the currencies of India's main trading partners, adjusted for inflation in each country. When the REER stays high, Indian goods and services become costlier for foreign buyers, even if the rupee looks stable against the dollar.

The same source says the fall in rupee was partly a competitiveness reset. That means the currency dropped to correct a price that was too high, and this correction helps exporters. IT services firms are among the biggest exporters in our country because most of their clients are overseas and they get paid in foreign currencies.

From an investment point of view, this positions the currency as a support factor. A lower REER makes Indian services more competitive, and a depreciated rupee raises the value of dollar earnings in rupees, which both benefit the sector.

There is no data showing that the rupee moved the index in July. The rupee had touched its low earlier, in May, and it had already recovered part of the fall by June. A factor that has been around for several weeks is not easily presented as the cause for a gain that appeared in just a single month.

The reverse AI trade is the only explanation that Business Standard gave for July, and the currency is better treated as one of the conditions that was helping the sector in the background. Whether it carried more or less weight than the movement of global technology shares cannot be measured from the notes available. The two effects were happening together, and the data does not separate them.

September's reversal

On 16 September 2026, the US Federal Reserve raised its policy rate by 25 bp to 3.75% to 4.00%, its first hike in over three years. Navia Markets says higher US rates hurt the flows of money into emerging markets and also weigh on IT stocks.

Individuals holding IT shares saw the effect quickly.

The Nifty 50 fell about 6% in the month and closed at 22,620.45, while the Sensex closed at 72,480.29. It was the second monthly fall in a row and the worst month since March.

Finnovate data shows that Nifty IT ended September about 29.84% below its one year closing high. On a combined score, it ranked last among 19 sector and thematic indices.

Families who had seen the July gain in their fund statements are now receiving a very different set of numbers. The rally of one month has been reversed within the next two months.

It is not clear how much of the September fall came from the Fed hike and how much came from foreign investors selling.

Investors holding IT shares are now looking at two sets of numbers together, the movement of the dollar and the movement of global money. When US interest rates are raised, foreign funds generally find it more attractive to keep their money in American assets, and emerging markets such as India receive smaller flows. Navia Markets links the weakness in IT stocks to this change in the rate direction in the United States.

The September data from Navia Markets and Finnovate shows how wide the gap has become between the sector and the other indices. Many individuals who had added IT funds to their portfolios after the July gain are checking their statements and finding that the sector now sits at the bottom of the sector rankings.

The month end data for October 2026 will show whether the sector continues to fall, or whether the buying seen in July returns.

Beyond the reverse AI trade reported by Business Standard, no clear driver for the July rise has been reported.