Nifty IT ringing a bell of caution amid trade war trepidation

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26 Aug, 2025 12:21

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Manali Bhatia

Negative divergence attracting a trader’s attention in Nifty IT

In the current scenario, when we are out of the euphoria of election results and new record high have been made due to sentimental buying, it is a time to take a pause and recheck the market parameters.

There is an ambiguity with regards to how the ongoing retaliatory tariff impositions between US and China plan out and we believe that traders should adopt a cautious approach.

If trade war takes a major form then Indian companies is also likely to get impacted to some extent.

The one sector which is ringing the bell of caution is “IT”. Being a major exporter, Indian IT companies could see a knee jerk reaction if trade war tensions escalate.

The above scenario is reflecting in the chart of “Nifty IT”. The initial signs of exhaustion can be clearly seen in the monthly chart where a short period divergence is visible. The sector has given the breakout but could not manage to show follow through and again entered in a trading range.

Strengthening Indian Rupee (INR) again acts as a constraint for IT companies. Looking at the technical structure, seems that the Indian Rupee could appreciate till 68.9 and 68.2 in the coming days. USD/INR going through the series of lower tops and lower bottoms and trading below major short term as well as long term moving averages; even on weekly chart, it shows a strengthening sign.

Apart from this, US came out with the decision to roll back export incentives provided under Generalised System of Preference (GSP) and we should take this act as initial sign of caution, as IT plays a major role in Indian export, so the probability of tariff impositions cannot be ruled out.

Though current scenario and chart pattern is reflecting a trend reversal or immediate fall but surely providing a warning signals, we believe that proactive approach need to be adopted by the traders rather than waiting for the reaction. Stock in sector which is likely to least impacted by the ongoing scenario is TCS, LTI and LTTS.

Why LTTS, LTI & TCS?

LTTS continues to see a healthy pipeline across geographies and industry segments. It registered 26.5 percent y-o-y revenue growth on constant currency, is quite high compared to industry. Digital & leading-edge technologies - the growth driver for ER&D, grew 58 percent Y-o-Y and contributed to 33 percent of revenues in FY19, demonstrating its success in aligning with the industry trends.

Amongst geographies, North America constitutes largest market with 57.7 percent of revenue share followed by Europe and India with 16.9 percent and 13.3 percent share respectively. Rest of the world contributes 12 percent of global revenues.

Similarly, LTI reported 20.9 percent y-o-y revenue growth on constant currency in FY19. In terms of vertical, company business is very well diversified from BFS, manufacturing to others. Both have excellent corporate governance by their parent L&T which holds 75 percent stake in both the companies.

Further, they are in the path to acquire full control of Mindtree. After this acquisition, L&T would be one of the major player in IT sector.

As TCS has already taken two buybacks back to back, is still having significant cash in their books and also continuously generating huge cash flow which would provide further possibility of buyback in coming years. Apart from this, in Q4 company reported vigorous double digit growth of 31 percent in the digital business would help company to expand its operating margins ahead.

(The Author is Senior Research Analyst at Rudra Shares & Stock Brokers.)

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