NSE Nifty IT index ended in green today after posting CY23’s biggest fall earlier Monday. The IT index had tanked over 7% intraday on Monday after disappointing Q4 results of Infosys and TCS and dragged the NSE Nifty and BSE Sensex below crucial levels. The high probability of the US, UK and Europe’s economy slipping into a recession has made investors worried but analysts believe that after a few quarters, the sector will grow and recover rapidly as many enterprises are still in the early stages. NSE Nifty IT has fallen 5.6% this year so far. In comparison, NSE Nifty 50 has slipped 2.2%.
Nifty IT Outlook for FY24
Investors can consider accumulation strategy in IT sector
Despite the Q4 results being below expectations, potential growth drivers in the form of cloud and digital transformations, as well as strong deal pipelines in certain areas. “We had a neutral rating on the IT sector due to high valuation and low earnings growth under risk of recession in the US. However, the consolidation of the IT sector in the last 15 months has moderated the valuation risk. Now we think that a long-term investor can consider implementing an accumulation strategy in the IT sector. Industry valuation has reduced to 5yr average, though volatility is expected in the short term,” said Vinod TP, Research analyst Geojit Financial Services.
Uncertainty in IT sector to remain for next 1-2 quarters
“With a high probability of recession in the US, UK, and many European countries, we see uncertainties continuing around the order outlook for the next 1-2 quarters. However, some good value opportunities are gradually emerging in the IT sector. Infosys is now trading at a PE multiple of 21.2 times, anything below 19 times is a great opportunity for investing in the stock,” said Divam Sharma- Founder at Green Portfolio PMS.
Slowdown in BFSI segment may mute IT sector’s growth
“Uncertainties in the US market may decrease in the April-June quarter, but new work could take another 1-2 quarters to materialise, indicating that October-November might be a better time for the industry. However, the slowdown in the BFSI segment, which is high on the digital maturity curve, may mute growth for IT over the next three to four quarters,” said Sonam Srivastava- Founder at Wright Research.
Kotak Securities – Infosys: Buy – TCS: Add
Analysts at Kotak Securities believe that digital transformation is an ongoing journey with most enterprises still in the early stages and having a positive rating on Infosys (BUY) and TCS (ADD). They expect a quick resolution to the global banking crisis and problems arising from banking industry events remaining localized to BFS. “Improved payout ratios of IT companies, full participation in the digital journey of clients, and legs to medium-term growth from the completion of digital transformation journeys of clients mean that stocks could bottom at multiples higher than earlier recessions, assuming a similar cost of equity as in the past. Stock valuations do not bake in a recession but do build in a slowdown. Large-cap stocks are ~ 15% away from building in a recessionary scenario,” said Sumit Pokharna, Research Analyst Vice President, Kotak Securities Ltd.
Nifty IT support at 26000-25000; resistance placed around 30000
“There is support for the Nifty IT Index around the 26000-25000 zone, while resistance is placed around 30000 levels. The negative sentiments from the beginning of the quarterly results led by TCS and Infosys could continue to impact other companies in the sector, such as HCL Tech, Wipro, TechM and Coforge among others,” said Om Mehra, Equity Research Analyst at Choice Broking.