Nifty IT index gains 6% in 2 days; Tech Mahindra, Coforge hit 52-week highs

Mphasis surged 4 per cent, while TCS, Infosys, HCL Technologies and L&T Technology Services gained in the range of 2 to 3 per cent

The Nifty IT index surged higher for a second straight day to close Friday’s session with a sharp 4.45 per cent gain as the Street shrugged off a muted or weak first quarter of financial year 2023-24 (Q1FY24) for IT companies that have, so far, announced their results.

The Nifty IT index hit over a four-month high of 31,017 level today, rising over 6 per cent in the past two trading days. The index was trading at its highest level since March 6, 2023. Tech Mahindra (Rs 1,213) and Coforge (Rs 4,898) were up 3 per cent each, hitting their respective 52-week highs, while Mphasis surged 4 per cent.

Tata Consultancy Services (TCS), Infosys, HCL Technologies and L&T Technology Services were also up in the range of 2 per cent to 3 per cent.

Among individual stocks, TCS gained 2 per cent to Rs 3,409 in the intra-day trade today, surging 5 per cent in the past two trading days, as investors took comfort from a robust order book and an encouraging pipeline.

Similarly, HCL Technologies, which fell short of the Street's expectations on the revenue and margin fronts given cuts in discretionary expenditure, gained 2 per cent to Rs 1,138 in the intra-day trade today. It has bounced back 5 per cent from its Thursday's low of Rs 1,087. Wipro, too, was up 2 per cent in the intra-day trade today, gaining 3 per cent in the past two trading days.

TCS noted that customers have been re-assessing tech spends, especially where RoI was low, and it avoided giving any indication of the timing of a demand recovery. However, TCS is optimistic about Generative AI (GenAI) as it is currently working on multiple proof of concepts, with 100 opportunities in the pipeline.

Analyst at BNP Paribas India see TCS benefiting, both on demand and cost, from GenAI’s new uses cases and higher productivity. The brokerage firm sees subsiding macro concerns as key to demand recovery as deal signings ($10.2 billion, book-to-bill: 1.4x, ex-BSNL) and pipeline remain strong.

TCS still aspires to get earnings before interest tax (Ebit) margin back to 26-28 per cent and exit FY24 with a higher margin year-on-year (YoY). "Continued strong deal signings give us confidence that the slowdown is transient and we think TCS will gain revenue market share in a cost-focussed demand environment," the brokerage firm said in result a update report with a 'buy' rating on the stock and a target price of Rs 3,960 per share.

As regards Wipro, analysts at HDFC Securities said the company's seasonally strong H2 (October to March) supplemented by Q1 large deal bookings of $1.1 billion can put the company back to sequential growth but with a quarter's lag as compared to peers.

"While there aren't any near-term catalysts, improved payout following an acquisitive strategy in the prior two years and valuations at 16x FY25E limit the downside risk," the brokerage firm said. It maintains 'ADD' rating on the stock with an unchanged target price of Rs 410, based on 16x Jun-25E EPS.

Higher exposure to Cloud, which comprises a larger share of non-discretionary spending, offers better resilience to its portfolio in the current context, with higher demand for Cloud, Network, Security, and Digital workplace services. Given its capabilities in the IMS and Digital space, along with strategic partnerships and investments in Cloud, added brokerage firm Motilal Oswal Financial Services.

It expects HCL Technologies to emerge stronger on the back of healthy demand for these services in the medium term. The brokerage firm reiterates 'buy' rating on the stock with a target price of Rs 1,280.