bengaluru, Sept. 9 -- Beaten-down shares of India's top five IT services firms are attracting fresh interest from analysts betting that a weaker rupee, artificial intelligence (AI) deals, and possible US rate cuts could spark a revival. Nuvama Institutional Equities on 1 September upgraded its recommendation on India's information technology services sector from 'underweight' to 'overweight', recommending that investors include more IT stocks in their portfolio. Axis Capital, Antique Stock Broking Ltd, JM Financial and HDFC Securities are also more optimistic on domestic IT stocks than they were at the beginning of the year. "We are upgrading IT to OW, from UW earlier. Over (the) last three years, IT has become more of a trading/relative valuation call rather than a structural one", Nuvama analysts said in a note, adding that "a weaker INR would mitigate the demand slowdown". The rupee has depreciated nearly 3% against the US dollar this year, which could potentially translate to higher revenue for Indian IT service providers as they fetch more than half their earnings from the US. On Monday afternoon (September 8), the rupee was at 88.03 to the US dollar after dropping to a record low of 88.36 on Friday, 5 September. It was around 85 to the dollar in January. A second brokerage said IT service firms providing high-value services such as AI-led business transformation rather than basic IT infrastructure work would command larger and more strategic deals. "The outlook over the medium to long term is more favourable, as the market gradually shifts toward higher-value offerings such as AI-driven applications, data engineering, and advanced analytics," Antique Stock Broking analysts Vikas Ahuja, Rhea Baid, and Divija Parekh said in a note dated 4 September. "This evolution is expected to unlock greater discretionary spending, which has been constrained on cloud-centric deals, ushering in a new wave of growth opportunities for both, cloud hyperscalers and their IT services partners," they said. "AI could be the catalyst for new projects and it's possible to have higher revenues per employee with less people," added R. Wang, founder of Constellation Research. None of India's large homegrown tech service providers call out AI-led orders. Of the large IT firms, only Accenture Plc. ($7.1 billion) and International Business Machines Corp. ($7.5 billion) have called out AI-led orders. India's IT services sector is likely to benefit from increased discretionary spending by clients on technology from October, a third brokerage said. "We believe that we will see more discretionary spending coming back in the second half of the fiscal (year) and the situation will be better than it was in the first half," said Amit Chandra, vice president at HDFC Securities. "Large clients among banks and healthcare firms have held back on their spending and those will come back if there is stability in the macroeconomic conditions." Geopolitical conflicts, uncertain macroeconomic conditions and tariff wars have forced large firms to hold back their tech spending to focus on running their primary business. Seven of India's top 10 IT services firms have called out tariff-related disputes between nations as a risk to their business, Mint reported on 2 September. JM Financial has upgraded its views on India's IT services sector to 'neutral' after being bearish at the start of the year. "While demand may not bounce back rapidly, clarity on tariff rates-now emerging-and Fed rate cut-now three likely in 2025-could trigger a mean-reversion of sorts for multiples," JM Financial analysts Abhishek Kumar, Nandan Arekal, and Anushree Rustagi said in a note dated 19 August. If the US Federal Reserve cuts its lending rates, companies can borrow more money from banks and financial institutions at lower interest rates, allowing them to plough more money into IT projects. India's five largest IT outsourcers have struggled to grow at more than 5% the previous two years, save HCL Technologies Ltd, India's third-largest, which grew at 5.4% in 2023-24....