Motilal Oswal sees end of IT sector's harsh winter, Nifty IT rises 2.5% led by Infosys, TCS

Motilal Oswal identified healthcare, manufacturing, and BFSI (Banking, Financial Services, and Insurance) as the verticals that are likely to lead the IT sector’s recovery.

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IT stocks surged 2.5 percent on September 10 driven by expectations of US rate cuts and positive cues from the Nasdaq. Gians in the Nifty IT index were led by Infosys, TCS, and Coforge which were up 2-6 percent. Meanwhile, Persistent Systems, L&T Technology Services, and Mphasis gained 2-4 percent.

Coforge emerged as the top gainer in the IT space, jumping nearly 6 percent. This came on the heels of an upgrade by Motilal Oswal Financial Services, which raised its rating on Coforge to 'Buy,' forecasting a 25 percent upside, from its current levels. "We believe Coforge can leverage synergies from Cigniti, while healthy growth in its executable order book bodes well for its core business," the brokerage said.

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The US tech-heavy Nasdaq Composite gained 1.3 percent overnight and this positive sentiment spilled over into the Indian IT stocks. Additionally, there is an expectation that the US Federal Reserve will eventually begin a rate-cutting cycle following the FOMC meeting from September 17-18, which could boost corporate tech spending. This would benefit Indian IT companies, which derive a substantial portion of their revenue from US-based clients.

Motilal Oswal anticipates recovery in the IT sector

Motilal Oswal's report said that after a challenging period marked by discretionary spending cuts and a slowdown in growth, the IT services sector is finally showing signs of recovery. According to Motilal Oswal, the sector is emerging from a "harsh winter," with the groundwork being laid for sustained growth over the next two to four years.

The firm expects a new wave of growth for the sector, driven by the continued expansion of Global Capability Centers (GCCs), opportunities in Generative AI, and cloud services. It also identified healthcare, manufacturing, and BFSI (Banking, Financial Services, and Insurance) as the verticals that are likely to lead the sector’s recovery.

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Expert opinions on IT

In an interview with CNBC-TV18, George Thomas, Fund Manager at Quantum AMC said that the IT sector has shown robust deal wins over the last few quarters, prompting. While he believes that IT earnings could surprise on the upside, he did identify valuations as a matter of concern.

Pankaj Murarka, founder of Renaissance Investment Managers, shared a similarly optimistic view. Speaking with CNBC-TV18, Murarka said that US tech spending is likely to rebound once the Federal Reserve initiates its rate-cutting cycle. His fund remains overweight on tech, with holdings in major IT players such as Infosys, Tech Mahindra, Coforge, and Persistent Systems. He identified Birlasoft as a rising star in the IT space saying that it is at the same stage that Persistent or Coforge were a few years ago.

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.