CLSA stays upbeat on Indian IT stocks; check rationale, top picks here

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Analysts at CLSA remained bullish on Indian Information Technology (IT) stocks after Nvidia’s June-quarter results, citing a strong US growth and a revival in discretionary spending.

 

The IT sector's attractive valuations, both historically and relative to the Nifty and Nasdaq, offer downside protection, CLSA said in a report on August 28. The brokerage picked Infosys and Wipro as top choices, rating them ‘Outperform’ and noting they are among the highest beta stocks.

 

Companies like Tata Consultancy Services (TCS), Infosys, Wipro, and Tech Mahindra have strong capabilities built around the Nvidia ecosystem, CLSA noted. Over the past three months, TCS and Nvidia have collaborated to design AI-native solutions for the telecom sector, giving TCS's telecom clients access to advanced agentic AI and digital twin technologies to enhance operations and business processes.

 

On the bourses, the Nifty IT index has fallen by 18.1 per cent so far this year, the worst among key sectors. During the same period, Nifty has risen by 3.8 per cent.  

 

Indian IT Q1 recap

Tata Consultancy Services Q1 earnings missed the street's expectations amid macroeconomic uncertainty and slow discretionary spending. HCL Technologies reported a sequential decline in net profit and cut its margin guidance for the full fiscal year. Tech Mahindra reported a sequential decline in first-quarter earnings, with analysts expressing caution over margin improvement prospects.

 

However, there was cautious optimism seen in the earnings of Wipro and Infosys, with revenues beating the street forecasts. Persistent reported a modest sequential growth, missing estimates along with that of Coforge. 

 

Nvidia Q2 results 

The positive ratings for these companies come after the artificial intelligence (AI) darling, Nvidia, reported a 56 per cent surge in quarterly sales to $46.7 billion, slightly above Wall Street estimates. The AI major gave a revenue forecast of roughly $54 billion for the third quarter, in line with estimates. 

 

The company approved an additional $60 billion share buyback and projected AI infrastructure spending to reach $3 trillion–$4 trillion by the end of the decade.

 

CLSA said Nvidia delivered another strong quarter with a third-quarter forecast of $54 billion, pointing to sustained 54 per cent growth. On its earnings call, Nvidia projected $3-4 trillion in AI infrastructure spending by 2030, with the top four hyperscalers expected to spend $600 billion in capital expenditure this year, double the level of two years ago, it added. 

 

Data centre revenues rose 56 per cent year-on-year (Y-o-Y) to $42 billion but grew only 5 per cent sequentially, which weighed on Nvidia's stock after market hours. CLSA noted this, along with US tariffs on India, as the key factors behind Indian IT stocks underperforming the Nifty on Thursday, when the index fell over 1.5 per cent.