Is information technology (IT) sector set for a comeback? On Tuesday, large-cap IT stocks rallied on the back of a rating upgrade by Morgan Stanley. Two analysts from the brokerage said in a note that Indian IT services stocks could be set for a turnaround in 2018. Shares of Tata Consultancy Services, Infosys and Wipro jumped as much as 4% after the brokerage revised their price targets upwards. The analysts believe that the valuations are below long-term averages and an improving global macro could spur tech spending, which could re-rate the stocks.

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IT stocks have been underperforming the market in the past few years amid slowing growth and regulatory concerns. IT underperformed the Sensex in 2017 as revenue growth was tepid while investment in the business and a strong rupee kept margins in check, according to Morgan Stanley.

Interestingly, European geography has been strong while North America is believed to pick pace in mid-2018 as banking clients start to spend, according to analysts. Digital deals have steadily grown big from a few million dollars to $40-50 million and adoption is deepening, which could improve both revenue growth rates and visibility.

There is no doubt that the re-rating of IT stocks will push up the stock market indices to a new high. When IT stocks join the ongoing party, the indices can only go northwards.