Nifty IT near 2-year high; up 9% in 2 days post solid Q3 show by majors

The Nifty IT index was trading at its highest level since January 19, 2022. It had hit a record high of 39,446.70 on January 4, 2022.

The Nifty IT index, a gauge for information technology (IT) companies, continued its northward movement for a second straight trading day, quoting near its two-year high of 37,929 as it jumped 4 per cent on the National Stock Exchange (NSE) in Monday's intraday trade.

In the past two trading days, the IT index has surged 9 per cent after the industry majors announced their December quarter (Q3) earnings. The index was trading at its highest level since January 19, 2022. It had hit a record high of 39,446.70 on January 4, 2022.

Shares of Tata Consultancy Services (TCS), Infosys, Wipro, and HCL Technologies, the companies that have announced their Q3FY24 results so far, soared up to 14 per cent today. READ MORE

Besides, Tech Mahindra, L&T Technology Services, LTI Mindtree, and Coforge were also trading at their respective 52-week highs. These stocks have rallied up to 17 per cent in the past two trading days.

Among individual stocks, Wipro soared 14 per cent to Rs 529 as the company beat profit estimates in Q3FY24.

HCL Technologies, on the other hand, surged 5 per cent to Rs 1,619.60 after the company's revenue for the quarter grew 6.5 per cent year-on-year to Rs 28,446 crore, and 6.7 per cent on a quarter-on-quarter basis. This is one of the highest revenue growths since Q3FY21. It reported a net profit of Rs 4,350 crore, up 6.2 per cent year-on-year, and 13.5 per cent sequentially.

However, the company revised its FY24 revenue growth guidance to 5-5.5 per cent, from its earlier 5-6 per cent. Ebit margin is expected to be between 18.0 per cent and 19.0 per cent, HCL Tech said.

Motilal Oswal Financial Services (MOFSL) said the strong growth guidance and margin performance in a weak demand environment should boost investor confidence on the company's business and reduce the valuation gap with larger Tier-1 peers. Given its capabilities in the IMS and Digital space, along with strategic partnerships and investments in Cloud, the brokerage firm expects HCL Technologies to emerge stronger on the back of healthy demand for these services in the medium term.

The brokerage firm sees Wipro's Q3 performance as positive as the company struggled to deliver on expectation over the last few quarters due to macro headwinds. It said the management's commentary on higher deal wins in the Consulting vertical indicates that the drag from that segment is now bottoming out, which should help improve overall growth.

Peer TCS, analysts at Elara Capital said the demand outlook can turn positive as investments in digitization currently lag requirement. 

"With supply-side situation easing, and pick- up in Manufacturing, Energy-Resources, Life-Sciences, and consumer business group, investments are only awaiting consumer confidence to turn positive as and when signs of improving macro percolate," they said in a result update report. The brokerage firm has a 'buy' rating on TCS with a target price of Rs 4,430.

TCS hit a fresh 52-week high of Rs 3,965, up 2 per cent on the NSE in the intraday trade today. The stock has rallied 6 per cent in the past two trading days. It had hit a record high of Rs 4,043 on January 17, 2022.

Lastly, as per Infosys' management, the demand environment is largely unchanged, with cost takeout and consolidation deals continuing to see traction. 

Analysts at Emkay Global Financial Services expect growth to accelerate in FY25 on account of ramp-up of large deals, strong deal pipeline, and expected recovery in discretionary spending. Shares of Infosys were up 3 per cent to Rs 1,664.95 in the intraday trade today and have rallied 10 per cent in the past two trading days.