Nifty IT index jumps 2%; Tech Mahindra, Persistent trade at 52-week highs

The Nifty IT index has outperformed surging 14% in the last one month owing to the recent portfolio shift after the election outcome, and hope for a better calendar year 2025.

Shares of information technology (IT) were in focus on Monday with the Nifty IT index gaining 2 per cent on the National Stock Exchange (NSE) as large cap companies from the sector will kick-start June quarter (Q1FY25) earnings next week.

At 11:53 am; the Nifty IT index, the second largest gainer among sectoral indices after Nifty Media, was up 2.02 per cent. In comparison, the Nifty 50 was up 0.41 per cent at 24,109. The Nifty IT index has rallied nearly 14 per cent in the past one month.

The Nifty IT underperformed the broader market by ~4 per cent over a period of three months due to delayed demand recovery. However, it outperformed over a one month period due to the recent portfolio shift after the election outcome, and hope for better calendar year 2025 (CY25).

Persistent Systems, Wipro, Tech Mahindra, L&T Technology Services (LTTS), Mphasis, LTI Mindtree, Coforge and Tata Consultancy Services (TCS) were up in the range of 2 per cent to 4 per cent. Besides, Tech Mahindra and Persistent Systems from the index stocks, Black Box, Netweb Technologies India and Oracle Financial Services Software from non-index stocks hit their respective 52-week highs on the bourses.

The board of directors of TCS is scheduled to meet on July 11, 2024 to consider and approve audited financial results for the quarter ending June 30, 2024 and to consider declaration of first interim dividend to the equity shareholders.

According to analysts, IT sector’s Q1FY25 revenue growth is likely to reflect seasonal strength and benefits of large deal ramp ups, although discretionary spending remains weak.

Analysts at Emkay Global Financial Services expect year-on-year (YoY) growth trajectory to show improvement on the back of large deal ramp ups, broadly stable demand environment, and no further deterioration in discretionary spending.

The delay in decision-making on account of macroeconomic uncertainties continues to restrict meaningful pick-up in growth momentum. Margin performance is likely to be mixed depending on wage-hike cycle (few select companies), higher travel costs, and transition costs of large deals.

Commentary on recovery in demand will be keenly watched to gain confidence on sustainable improvement in YoY revenue growth trajectory. Large deal announcements reflect some moderation in deal wins in Q1. Going ahead, the brokerage firm believes the interest rate cuts will act as a trigger for revival in discretionary spending and an uptick in technology spending.

“Our discussions suggest that the Jun 2024 trends are positive vs. May/Apr 2024 and/or at the beginning of 1QFY24. Client procrastination across industry segments is receding and is being replaced with 1) a sense of urgency, and 2) a change in the speed of decision making,” analysts at InCred Equities said in an IT sector report.

Q1FY25F is unlikely to drive upgrades but could limit downgrades and potentially change the messaging, while the continuation of this trend in Q2 could improve visibility & drive FY25F upgrades. Although, the recovery in discretionary projects, if any, is positive for Tier I companies given their favourable valuations, select Tier-II companies could benefit too, the brokerage firm said.

Among individual stocks, Tech Mahindra hit a 52-week high of Rs 1,474, up 3 per cent on the NSE in intra-day trade. In past one month, the stock has rallied 18 per cent, as compared to 3.6 per cent rise in Nifty 50.

Analysts at ICICI Securities have a ‘Buy’ rating on Tech Mahindra with a target price of Rs 1,640 per share as the brokerage firm believes the company is well placed among the large peers in terms of earnings growth momentum driven by turnaround strategy.

“We believe that the company’s dollar revenue will grow at CAGR of 6.5 per cent between FY24-26E but the operating profit growth is likely to outpace, EBIT margin to improve from 6.1 per cent in FY24 to 12.8 per cent in FY26E. Consequently, PAT to grow at CAGR of 56.8 per cent over FY24-26E,” the brokerage firm said in its stock update.