Market update: BSE IT index rallies 1.5%; Tech Mahindra, HCL Tech, Infosys surge 2%

Most IT services companies' shares were trading with gains on May 19, Friday. The S&P BSE Information Technology index quoted at 28,253.10, up around 1.50 per cent at the time of the writing of this news. In comparison, the benchmark S&P BSE Sensex was trading at 61,646.03, up 0.35 per cent.

Among components of the IT index, Aurionpro Solutions was locked in a 10 per cent upper circuit to Rs 652.85. It was the top gainer on the index, followed by Datamatics Global Services (up 6 per cent) and Mastek (up 6 per cent). Among Tier-1 IT companies, Tech Mahindra was ruling 2.3 per cent higher at Rs 1,072.15 while Infosys and HCL Tech were up around 2 per cent each. Wipro was training around 1.5 per cent higher at Rs 388.05 on the BSE. The company on Thursday announced a five-year business partnership with ServiceNow, a Santal Clara-based software firm, to invest in and bring new offerings to market that will empower clients to drive business transformation, overcome business challenges, and deliver better value.  

Apart, Wipro had announced a share buyback of Rs 12,000 crore on April 27, 2023, which is expected to be completed by July 2023. ICICI Securities has advised clients to tender shares in the buyback, especially those clients who hold up to 449 shares (retail category). Currently, as per Sebi guidelines, 15 per cent of buyback (Rs 1,800 crore in the Wipro case) is to be reserved for the retail category  (up to Rs 2 lakh).

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On the IT sector outlook, Kotak Securities, in an April 17 report, noted that FY2024E was supposed to be weak and should play out that way. What is critical for valuations is a view on structural growth drivers, i.e., will growth accelerate above the pre-COVID level in FY2025? The current slowdown will raise questions about the sustainability of longer-term digital transformation spending.
Supporting a constructive view is the fact that workloads on the cloud are still 30-35 per cent and will require additional 2-3 years to reach the desired 60-70 per cent levels. 

"We expect the adoption of cloud-native applications to increase as more IT workloads move to the cloud. There are plenty of exciting technologies, such as IoT, big data and deep learning AI, that lend themselves well to cloud environments. Analytics and big data on the cloud are already seeing massive adoption. These can sustain healthy growth for IT services beyond the cloud
migration phase," the brokerage had said.