After falling sharply for the past few months, shares of information technology (IT) companies are seeing an uptick, primarily driven by expectations of better earnings for the March quarter and ease in valuations. While the conflict in West Asia has been pinching the overall market as well as the sector, experts believe that IT stocks are pricing in worst-case scenarios.
The Nifty IT index closed 2.5% higher at 31,403.35 points on Tuesday, extending the winning run to the fourth trading session and gaining 8% during this period. Top tier players such as Infosys, HCL Technologies, Tata Consultancy Services, and Wipro closed 2.6-3.7% higher, which also aided the overall market movement.
What do experts say?
Experts said IT stocks are now trading close to the 5-year average. The sector, which earns around half of its revenue from US clients, has been feeling the heat of weak discretionary spends, muted revenue growth, and caution from clients due to US tariffs. What came as a double whammy is the war in West Asia.
The geopolitical tension has given rise to the possibility of a spike in inflation in the US as well as India, which consequently opened the door for speculations that central banks may go for rate hikes in the medium term if the issue prolongs.
“If the US increases interest rates by any chance in the future, of course discretionary spends will get pushed back further and IT business segments such as retail also will suffer,” an IT analyst at the broking arm of a top Indian private sector bank said.
With the earnings season kickstarting this week, the analyst also said tier-1 IT companies will likely guide for a low-to-mid single digit growth for FY27, largely similar to FY26. Deal activities were healthy and there could be margin tailwinds from the depreciation of the rupee.
Looking at the IT index
In March, the IT index declined 5% after falling nearly 20% in February which was the biggest monthly fall since September 2008. The selling pressure in the sector eased slightly in March, with them offloading shares worth ₹1,874 crore in March after net selling almost ₹17,000-crore worth of IT stocks a month ago, as per National Securities Depository data.
Investors are currently focused on revenue guidance in the context of artificial intelligence-led disruption and the ongoing West Asia crisis, not to mention order book strength and near-term earnings visibility, JM Financial Institutional Securities said in its report. “A key debate remains whether the sector could see further valuation de-rating, particularly in light of the global IT valuations,” it said.