The shares of IT companies recorded notable rise on August 20, leading gains among the sectors on market today. The Nifty IT index rose nearly 3 percent, extending gains for the second consecutive session.
The sharp rise in the IT stocks comes ahead of US Federal Reserve's Jackson Hole conference. The American central bank is set to hold its annual symposium from August 21 to August 23 in Jackson Hole, Wyoming. Fed Chair Jerome Powell is scheduled to speak on the economic outlook and central bank's policy framework on Friday.
US President Donald Trump has criticised Powell multiple times for not cutting rates. In a Truth Social post, Trump referred to Powell as “Jerome ‘Too Late’ Powell" and accused him of not acting promptly to reduce interest rates. He also stated that Powell is "hurting" the housing industry "very badly" and reiterated his call for a cut in key interest rates.
Most investors now expect a 25-basis-point Fed rate cut next month. A rate cut in the US could support economic growth and aid a revival in client spending, boosting the IT sector. Indian IT companies derive a major portion of their revenue from US market.
Infosys shares were the top gainer on the Nifty IT index, rising nearly 4 percent to trade at Rs 1,497.5 apiece. Kotak Institutional Equities maintained a 'Buy' rating on the stock, with a target price of Rs 1,850 per share. This implies an upside potential of nearly 28.5 percent from the stock's previous closing price. It highlighted Infosys CEO Salil Parekh's key comments on AI readiness, early focus on Project Maximus and acquisitions
Mphasis and Coforge shares followed, rising over 3 percent each. Tata Consultancy Services (TCS) shares gained nearly 3 percent, while Tech Mahindra and Persistent Systems shares were up around 2 percent each.
LTI Mindtree, Wipro and HCL Tech shares gained more than 1 percent each.
Valuations have corrected and now appear reasonable, said JM Financial. "While demand may not bounce back rapidly, clarity on tariff rates – now emerging – and fed rate cut – now three likely in 2025 – could trigger a mean-reversion of sorts for multiples," it said.
"Rising probability of Fed rate cut (likely limited effect of tariff on inflation) implies that market expects companies to absorb most of tariff increase. That could further squeeze IT Services spend, in our view. These pressures, in turn, are driving higher vendor consolidation opportunities – a positive – and margin pressures – a negative. That said, benign valuations and subdued expectations mean these concerns are likely priced in. Fed rate cut could therefore trigger a minor bounce back, in our view. Stocks with valuation buffers are better placed," the domestic brokerage added.
JM Financial says it prefers Infosys and TCS among the large-caps, Coforge and Mphasis among the mid-caps, and Sagility among the small-caps at the current levels.
Also read: Our LIVE blog on stock market updates
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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