IT Stocks Experience Remarkable Surge, Touching Record Highs Since September 2020

Rajesh
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The Nifty IT pack recently witnessed an extraordinary single-day surge, marking the most significant increase since September 2020. This surge not only propelled the Sensex and Nifty to reach record highs but also garnered attention due to the Q1 earnings reports of three prominent IT companies. The surge in IT stocks can be attributed to various factors, including the anticipation of a pause in rate hikes by the US Federal Reserve and a positive outlook for global equity markets. This blog post explores the reasons behind the surge and provides insights from industry experts.


IT Stocks Experience Remarkable Surge, Touching Record Highs Since September 2020

1. IT Majors Lead the Way:

Despite reporting sluggish growth and a cautious outlook for upcoming quarters, major IT companies such as Tata Consultancy Services, HCLTech, and Wipro witnessed substantial gains during the surge. TCS emerged as the frontrunner with a gain of 5 percent, followed by Infosys, Tech Mahindra, LTIMindtree, and HCL, each achieving a gain of 4 percent. Wipro recorded a 3 percent rise, while Mphasis, LTTS, and Tech Mahindra saw gains of 7.95 percent, 5.70 percent, and 4.3 percent, respectively.

2. Optimism Fueled by Controlled Inflation:

Investors' optimism about the US economy stabilized by controlled inflation played a significant role in the surge of Indian IT stocks. The belief that a 25-bps rate hike would be sufficient to stabilize the economy led to strong buying in the IT sector, despite muted Q1 earnings. Vinod Nair, Head of Research at Geojit Financial Services, highlighted the controlled inflation in the US as a contributing factor to the surge in IT stocks.

3. NASDAQ Index Influence:

IT stocks, along with select other tech stocks, are often seen as a reflection of the NASDAQ index. The recent rally in the NASDAQ index, which recorded a 3.44 percent increase in the last week, further boosted the confidence in Indian IT stocks.

4. Cautious Stance and Future Outlook:

While the surge in IT stocks is encouraging, several brokerages maintain a cautious stance on the sector due to limited visibility and the overall Q1 numbers of IT companies. Experts like Amol Athawale, Vice President for Technical Research at Kotak Securities, acknowledge the rally but emphasize the need for quarter-on-quarter growth to sustain it. Sumeet Jain, VP of the Technology Sector at ICICI Securities, suggests that much of the current trade revolves around catching up with the historical correlation between NASDAQ and the Nifty IT Index.

5. Strong Deal Wins and Recovery:

Amit Chandra, Deputy Vice-President at HDFC Securities, highlights the robust deal wins in the IT sector and anticipates a recovery in the second half of the fiscal year. He expresses confidence in the IT sector's growth visibility for FY25, considering the current multiples of IT companies and the potential for incremental growth.

6. Company-specific Outlook:

Despite worse-than-expected numbers in Q1, HCLTech maintains its guidance for FY24, anticipating a revival in demand during Q2. On the other hand, TCS met expectations, and Wipro's Q2 guidance exceeded predictions, adding to the positive sentiment surrounding the sector.

Conclusion:

The recent surge in IT stocks, marking the most significant increase since September 2020, can be attributed to several factors, including the expectation of a pause in rate hikes by the US Fed and optimism in global equity markets. Despite cautious views and limited visibility, industry experts express confidence in the growth potential of the IT sector, citing strong deal wins and the anticipation of a recovery in the coming months. The correlation between the NASDAQ index and the Nifty IT Index further bolsters investor confidence in the sector. As IT stocks continue to ride the wave of positive catalysts, their performance will be closely monitored in the coming quarters.

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