Nifty IT index surges 3%; Mastek, Sonata, Mphasis, Coforge rally up to 9%

At 10:12 AM, Nifty IT index, the top gainer among sectoral indices, was up 2.7 per cent

Shares of information technology (IT) companies were in focus on Thursday with the Nifty IT index hitting a fresh 52-week high of 34,100, surging 3 per cent in the intraday trade, amid a dovish US Federal Reserve policy where the officials forecasted at least three rate cuts next year.

At 10:12 AM, the Nifty IT index, the top gainer among sectoral indices, was up 2.7 per cent at 33,948 as compared to 1.2 per cent rise in the Nifty 50. The IT index had hit a record high of 39,446.70 on January 4, 2022.

Among individual stocks, Sonata Software, Mastek, Mphasis, Coforge, Cyient, Sasken Technologies, Birlasoft, Zensar Technologies, and Persistent Systems rallied between 5 per cent and 9 per cent. While HCL Technologies, Tech Mahindra, L&T Technology Services, Wipro, Infosys, and Tata Consultancy Services (TCS) advanced in the range of 2 per cent to 4 per cent.

On Wednesday, the Federal Reserve signaled it would cut rates several times next year, satisfying investors who hoped the central bank to start acknowledging the slowing trend of inflation with a less aggressive monetary stance, ICICI Securities said in a note.

"The crash in the US 10-year yield to 4 per cent will trigger large capital flows to India. The main beneficiaries will be the large caps, particularly the fairly valued large caps in the banking sector. IT, too, is likely to attract buying," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Meanwhile, the financial performance of mid-cap companies reflected better correlation between revenue growth and deal intake in Q2FY24. Analysts, thus, believe better performing mid-cap companies are likely to maintain double-digit growth in FY24, despite the challenging demand environment.

"Management commentary continues to suggest that demand is expected to remain muted in the near term. Continued weak discretionary spending, lower working days and the possibility of elevated furloughs would weigh on sequential growth in Q3FY24. While few companies have suggested a pickup in H2 compared with H1, most managements have shied away from guiding for any timeline of recovery. A few of the companies expect elevated furloughs not only in BFSI, hi-tech and manufacturing, but also in other verticals," analysts at Emkay Global Financial Services said in an IT sector report.

FY24 revenue growth was impacted by demand normalisation post-Covid and additional caution by clients amid macro uncertainties. Clients have paused/deferred discretionary programs and even increased scrutiny on project approvals with a clear focus on quick ROI.

"We expect some improvement in discretionary spending by the end of FY24, which remains key to meeting our/consensus estimates of high single-digit aggregate revenue growth in large caps in FY25. Clients’ fickle behavior continues amid macro uncertainties and any further weakness in macros may weigh on the recovery in discretionary spending and may lead to a cut in revenue estimates for FY25," the brokerage firm said.

As per IMF’s latest estimates, growth rates of US and Europe are expected to be moderate but positive in 2024. "This is our base case and, thus, recession probability remains a risk to our growth assumptions," it added.