The Nifty IT pack saw the biggest single-day surge since September 2020 and spurred the Sensex and Nifty to touch record highs on July 14, close on the heels of three IT majors reporting their Q1 numbers.
IT stocks surged over positive catalysts such as the expectation of a pause in rate hikes by the US Fed and optimism over global equity markets.
The gains during the day were led by IT majors, with Tata Consultancy Services, HCLTech and Wipro seeing strong gains despite reporting sluggish growth and a cautious outlook for upcoming quarters.
In the Nifty pack, TCS gained the most at 5 percent, followed by Infosys, Tech Mahindra, LTIMindtree and HCL, with a gain of 4 percent each. Wipro rose 3 percent. Mphasis gained 7.95 percent, LTTS was up 5.70 percent and Tech Mahindra 4.3 percent.
"The controlled inflation in the US has instilled optimism among investors that a 25-bps rate hike would be adequate to stabilise the US economy. This improved prospect has contributed to the strong buying of Indian IT stocks despite muted Q1 earnings," said Vinod Nair, Head of Research at Geojit Financial Services.
Apart from this, IT stocks and select other tech stocks are considered a reflection of the NASDAQ index too, with the latter having rallied 3.44 percent in the last week.
Despite the bump, brokerages remain cautious about the sector given the numbers of companies so far and the limited view ahead.
Amol Athawale, Vice President for Technical Research, Kotak Securities said that the spectacular rally in IT stocks followed better-than-expected earnings from select frontline tech companies which triggered a late upsurge.
Sumeet Jain, VP, Technology Sector at ICICI Securities, told Moneycontrol that a lot of 'hope trade' is happening with IT stocks.
"Overall expectations are that from here on quarter-on-quarter growth will start to show up. Globally, interest rates might start to come down faster than people were expecting in the US. NASDAQ and technology stocks have been doing great on a year-to-date basis driven by the promise of generative AI and long-term revenue expectations from it," he said.
He added that the NASDAQ and Nifty IT Index have had a co-relation of up to 90 percent over the last 7-8 years at least, and that much of the trade happening right now is about catching up with that.
Amit Chandra, Deputy Vice-President, HDFC Securities, said that the deal wins in the IT sector have been strong and the second half of the fiscal year will see recovery.
However, he said that in the last three months, there has been growing divergence between NASDAQ and the Nifty IT pack, after nearly 10 years of being correlated.
"There’s no further pain in the IT sector and the growth visibility for FY25 is going to be good. Multiples for IT companies are at a multi-year low. Even if the growth rate of the IT sector goes back from double-digit to pre-covid figures, whatever incremental growth will be happening now will still be 2X of the numbers pre-Covid," he added.
HCLTech has maintained its guidance for FY24 despite worse-than-expected numbers in Q1 in anticipation of a revival in demand in Q2. While TCS numbers were in line with expectations, Wipro’s guidance for Q2 was also slightly better than expected.
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