As many as 20 stocks in the BSE IT pack have more than doubled investors’ money in the past one year. With a rally of 567%, Aurionpro Solutions gained the most since February 7. It was followed by Magellanic Cloud (up 446%), Nucleus Software Exports (up 321%), Newgen Software Technologies (up 281%) and Birlasoft (up 200%). The BSE IT index rallied 28% to 38570.21 during the same period. Meanwhile, the index scaled a new all-time high of 39,158.87 on February 7. IT major Tata Consultancy Services (TCS) also gained 18% to Rs 4,083.20 in the last one year. It also scaled a record high of 4,156 on Wednesday. However, the market watchers look cautious for the near-term.
According to Systematix Institutional Equities, the imminent US rate easing cycle presages a critical inflection point for Indian IT companies, especially for the top large players who dominate the industry with 52-65% share. The US Fed projections have indicated 3 rate cuts in CY24 while the chair is treading a calibrated path. The build-up of rate easing expectations since Dec’23 has resulted in Nifty IT rallying 12.4%, with TCS, Infosys, HCL Tech, Wipro and Tech Mahindra gaining 10-16%. A juxtaposition of the performances of Indian IT companies (during FY07-15) to the prevailing likely rate cut scenario indicates these companies could outperform Nasscom estimates in the medium term.
Data further highlighted that Birlasoft, Quick Heal Technologies, KSolves India, 63 Moons Technologies, Sonata Software and Cyient also gained somewhere between 150%-200% in the last one year.
Sharing its top picks in the IT sectors, Systematix Institutional Equities said it prefers Infosys and TCS over Wipro. It further added that Wipro and Tech Mahindra may underperform compared with the top 3. However, it believes that the ongoing geopolitical uncertainty, sharp uptick in attrition and sustained pressure on tech spending are among the key risks for the sector.
“Q3FY24 results of the top 5 players suggest likely weak revenue performance in FY24, after the strong growth these companies witnessed in FY22 and FY23,” Systematix Institutional Equities said.
Kranthi Bathini, Equity Strategist, WealthMills Securities believes that the IT sector seems to have bottomed out. However, there is a need to see how the US economy is going to pan out in the next couple of quarters. “Probably a rate cut from the US Federal Reserve can make the companies to increase their IT budget which can be possible in the coming Fed meetings. In the medium-to-short term, margins will stay under pressure. However, large and midcaps are fairly valued. We like TCS, Infosys and HCL Technologies in the largecap space. Persistent Systems, MPhasis and KPIT Tech are our top picks from the broader IT space,” Bathini said.
Asked how the IT index and stocks are looking on charts, Milan Vaishnav, CMT, MSTA, Founder of Gemstone Equity Research & Advisory Services said, “Nifty IT index is in a strong uptrend. The examination of the charts shows this uptrend can continue however, consolidation at higher levels can be expected. Speaking from a short-term horizon, the IT Index has still some room left for the upside. It is likely to extend its up move and test its prior and all-time high of 39,446 which was seen in January 2022. This sector index faces resistance in the zone of 39,000-39,500 levels.” The index was at 37,767 on February 7.
“While these levels can offer stiff resistance, any penetration of these levels will mean a multi-year breakout for the IT Index. However, the index is presently overbought and can face resistance higher at the mentioned levels which can result in some consolidation. The stocks that are looking good on the charts are Zensar Tech, TCS, Infosys, Mphasis, and LTTS,” he said.
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