Is correction in IT stocks a buying opportunity? Here is what experts suggest

Nifty IT has corrected over two per cent in Tuesday's (April 16) trade amid receding bets of early US rate cuts which added to investors’ concerns over the conflict in the Middle East. Additionally, in a week, the Nifty IT has slipped over 5 per cent. 

As of 1:46 pm, Nifty IT was down 2.37 per cent at 33,646 with all of its 10 constituents trading in the red.

Infosys and Coforge fell over 3 per cent, Mphasis, LTIMindtree, and Wipro were down over 2 per cent, and HCL Tech, TCS, Tech Mahindra, Persistent Systems and L&T Tech were down over 1 per cent. 

What should investors do? 

Dhruv Mudaraddi, Research Analyst, StoxBox, is bullish on IT stocks. The IT sector looks interesting from a medium- to long-term perspective, Mudaraddi says.  

"With the current valuation of the IT sector looking comfortable vis-à-vis the overall market multiples and most of the negatives seemingly priced in the stocks," according to the analyst.

He recommends buying TCS and Infosys stock from a medium- to long-term perspective.

Aditya Goela, CFA, Co-founder of Goela School of Finance, recommends adopting a 'buy on dips’ strategy in the space for the long term.

"Viewed through the lens of long-term investment strategy, IT stocks present a compelling narrative of resilience and growth potential. Amidst market fluctuations, embracing a ‘buy on dips’ approach can prove advantageous, allowing investors to capitalize on temporary downturns and accumulate positions in fundamentally sound companies poised for future expansion,” said Goela.

Outlook on IT sector

Goel believes the relentless pace of technological innovation continues to fuel demand for IT products and services across various sectors, promising continued growth opportunities for forward-thinking companies. 

He reckons trends such as cloud computing, artificial intelligence, and digital transformation are expected to drive sustained revenue growth and market expansion.

According to Stockbox's Mudaraddi, the runway for growth in the IT space would improve from hereon on the back of the US Fed approaching closer to a rate cut, the discretionary spending from companies across segments should make a comeback which were put on hold in the past. 

Mudaraddi added the IT companies are right-sized in terms of their employee base and the benefits of margin improvement are likely to sustain going ahead.

Tata Consultancy Services (TCS) on Thursday, January 11, reported a net profit or profit after tax (PAT) of Rs 11,058 crore for the quarter ended December 31, 2023 (Q3 FY24). The figure slipped 2.5 per cent on a QoQ basis. On a year-on-year (YoY) basis, PAT grew 1.95 per cent. 

Catch the latest stock market updates here. For all other news related to business, politics, tech and auto, visit Zeebiz.com.

DISCLAIMER: The views and investment tips expressed by investment experts on zeebiz.com are their own and not those of the website or its management. zeebiz.com advises users to check with certified experts before taking any investment decisions.