Nifty IT gains 9% this week; what is the buzz?

The equity benchmarks have majorly recovered all the election result day losses as the initial nervousness around the results is now behind us. In this backdrop, sectorally Nifty IT emerged as the outlier this week with nearly 9 per cent gains even as Nifty50 over the week has come strong moving up over 3 per cent.

All of the stocks constituting the Nifty IT index traded with gains in the range of between 1-5 per cent, with Wipro leading the pack. Wipro stock is seeing gaining ground despite Morgan Stanley’s underweight call on the counter, pegging the counter’s target price at Rs. after the entity bagged a US$ 500 million deal from the US communication service provider.

Other stocks which were up between 1-5 per cent are Tech Mahindra (up 4.6 per cent), Coforge (4.4 per cent), Infosys (4.3 per cent), Persistent Systems (up 4 per cent) and LTIMindtree (up 3.7 per cent among others.

The positive movement in the US stock indices, which are heavily weighted towards information technology (IT) companies, has had a ripple effect on the Indian IT sector, said  Osho Krishan, Sr. Technical and Derivatives Analyst, Angel One. 

Yesterday, also the sentiment in the pack was upbeat after the US-based Nvidia pipped Apple to become the world’s second most valuable company. California-based tech giant has fostered partnership with several IT companies which shall serve as a catalyst for specific change in the global tech landscape.

Rajesh Sinha, Sr. Research Analyst at Bonanza Portfolio said that most of IT stocks are gaining as investors are churning their portfolios towards defensive stocks due to the uncertainty surrounding the new government formation. Also, some green shoots in the US and Europe are also helping IT stocks and investors anticipate some value emerging in the sector.

He added that investors are expecting rate-cut in the near term, encouraged by the slew of softer-than-forecast US data. Bank of Canada and ECB’s decision to ease monetary policy also boosted rate cut by Fed sooner than expected has also helped IT stocks to gain in the last 3 trading sessions.

However, this is just a small beginning, not a trend confirmation. We believe, things will be clear for IT sector only after the June quarter earnings and management commentaries on the demand outlook, the expert remarked.

Atul Parakh, CEO of Bigul on the resilience in the IT sector said key drivers shaping the landscape include government policies dictating digital infrastructure development and sector incentives, alongside a burgeoning global demand for IT services accelerated by the post-pandemic digital transformation. 

Should you buy IT stocks now?

The recent trends reveal a decline in business deals from the US, a critical market for Indian IT firms. This decline, coupled with the possibility of minimal Federal rate cuts amidst US inflation, prompts caution among investors, added Parakh.

Further, the next NDA government may consider increasing capital gains tax, potentially impacting foreign investment in the sector. As such, adopting a "wait and watch" approach may be prudent for new buyers, allowing for clarity on Federal rate cuts and government policies before making investment decisions, added the expert.

What technicals suggest for the Nifty IT index?

Nifty IT index has shown strong gains over the past few trading sessions, rising by over 8% in a week. It has now surpassed all of its significant Exponential Moving Averages (EMAs) on the daily time frame, which has caught the attention of market participants.

Osho noted that the large- and mid-cap IT stocks are witnessing substantial momentum originating from their robust support levels, indicating a potentially favorable risk-reward dynamic that is capturing the attention of a growing number of market participants.

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