Nifty IT index rallies 3%; TCS, HCL Tech, Mindtree, Coforge hit fresh highs

Persistent Systems, Datamatics Global, Birlasoft, Mphasis, Firstsource Solutions, NIIT, Mastek, Ramco Systems and Quick Heal from the S&P BSE IT index were up between 5% and 11%

Shares of information technology (IT) companies were on a roll at the bourses on Monday with the Nifty IT index surging over 3 per cent after HCL Technologies said that it expects the revenue and the operating margin for the July-September quarter (Q2FY21) to be meaningfully better than the top end of the guidance it had provided in July’2020.

At 10:40 am, Nifty IT index, the top gainer among sectoral indices, was up 3 per cent, as compared to 0.7 per cent rise in the Nifty 50 index. Tata Consultancy Services (TCS), HCL Technologies, Mindtree, and Coforge (earlier know as NIIT Technologies), from the IT index hit their respective record highs on the National Stock Exchange (NSE) today.

HCL Technologies rallied 8 per cent to Rs 776.65 in intra-day trade today, surpassing its previous high of Rs 738.80, touched on September 8, 2020. "We have seen strong execution during the quarter to date, and continue to execute to the plan this month. The Revenue growth for the current quarter is expected to exceed 3.5 per cent quarter on quarter in constant currency (CC), enabled by broad based momentum across all service lines, verticals and geographies,” HCL Technologies said in mid-quarter business update.

The IT major further said the earnings before interest and tax (EBIT) margin for the current quarter is expected to be between 20.5 per cent and 21.0 per cent. Good booking momentum continues this quarter, led by life sciences & healthcare, telecom & media and financial services verticals. The pipeline continues to look healthy across service lines, verticals and geographies, it said.

Meanwhile, TCS, too, hit a record high of Rs 2,443, up 3 per cent today. The market-capitalisation (m-cap) of the Tata group IT company surged past the Rs 9 trillion-mark for the first time. With this, TCS has become only the second Indian company, after Reliance Industries (RIL), to achieve the milestone.

Persistent Systems, Datamatics Global Services, Birlasoft, Mphasis, Firstsource Solutions, NIIT, Mastek, Ramco Systems and Quick Heal Technologies from the S&P BSE IT index were up between 5 per cent and 11 per cent.

All the Tier 1 IT vendors reported decline in net headcount for the April-June quarter. The lower travel costs, lower operational costs (as employees working from home) and headcount reduction have helped in margins for the quarter. Most midcaps which include LT Infotech/ Mindtree/ Hexaware/ Persistent have showed strong margin performance for the quarter.

Analysts at Centrum Broking see strong April-September (H1FY21) margins owing to postponement of wage hikes. The companies might have to get back on wage hikes in (October-March) H2FY21 if economy recovers and lock down eases.

Meanwhile, "the sector has seen a strong rally with Tier 1 IT stocks surpassing pre-covid absolute stock prices. Most stocks have even re-rated and are now trading at much higher P/E multiples compared to pre-covid levels. We believe moderating pace of Stimulus in USA could pose challenges in verticals like BFSI which has been more resilient in 1QFY21. Traditional retail, airlines, hospitality/energy and some sub segments of manufacturing can continue to pose headwinds in FY21," the brokerage firm said in IT services sector update.