Dovish Fed sparks rally in IT stocks, analysts say now is the time to shop

The Nifty It index surged over 3 percent and hit an 8-month high on December 14.

The US Fed’s dovish pivot sent the Nifty IT index soaring 3 percent on December 14, with analysts turning bullish on battered-down information technology stocks, as an impending rate-cut cycle bodes well for macro conditions in large economies.

As the Fed’s latest policy outcome triggered a global rally catapulting the Indian equity benchmarks to new heights on December 14, the Nifty IT index jumped to an eight-month high of 34,140.

Largecap IT names were among the Nifty 50's top gainers list, rising 2-4 percent even as other stocks soared up to 8 percent.

Analysts, too, are now seeing IT stocks, especially largecaps as value buys due to easing conditions plaguing the IT space.

Also Read | MC Explains: Why Fed took a dovish stance and what it means for Indian markets

The sector has struggled with a tough macro environment in recent quarters as the global slowdown prompted companies to cut IT spends. The earnings of most Indian IT firms have come under pressure due to a lag in deal conversions.

Easing macro conditions good for Indian IT space

Analysts says investors, especially those with long-term bets, should now shift focus to the IT space with macroeconomic environment expected to improve earlier than expected.

"Long-term investors can now turn into buying IT stocks, primarily largecaps as they have stronger balance sheets. There were also expectations of order flows being dried up but these largecaps have showcased sustained order books in the last few quarters," said Rajesh Agrawal, head of research, AUM Capital Markets.

Also Read | Sensex, Nifty hit record highs on Fed's dovish pitch, analysts expect largecaps to finally get going

Valuation comfort

"The biggest positive presented by IT companies at the current juncture is their reasonable valuations as compared to the historical averages. Such pockets in the market are difficult to find, especially after the recent bull run. Moreover, several large-cap IT majors also reward their investors with good dividends and constant buyback which is a bonus," Agarwal added.

Kranthi Bathini, director-equity strategy, WealthMills Securities, also vouched for the valuation comfort provided by IT stocks. Investors with a long-term horizon should start bottom-fishing among largecap IT counters. Those wanting to play safe can stick with industry majors like Infosys and TCS.

He, however, added that the earnings in the next quarters would remain crucial and so would management commentaries. On that account, he suggested deploying money into IT stocks in a staggered manner.

At 1.17 pm, shares of LTIMindtree, TCS, Infosys, Wipro and HCLTech were trading 2-4 percent higher, while those of Mphasis, Persistent Systems, L&T Technology Services and Coforge were up 4-8 percent.

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