Technology shares in demand; Nifty IT index rises 2%, TCS nears record high

The Nasdaq rose more than 2% on Thursday after July the US retail sales data signalled resilient consumer spending, allaying fears of an imminent recession in the world's largest economy.

Shares of information technology (IT) companies were in demand and trading up to 5 per cent higher on the National Stock Exchange (NSE) in Friday’s intra-day trade as Nasdaq rose more than 2 per cent on Thursday after July the US retail sales data signalled resilient consumer spending, allaying fears of an imminent recession in the world's largest economy.

Mphasis, L&T Technology Services (LTTS), LTIMindtree, Coforge, Tata Consultancy Services (TCS) and Wipro were trading higher in the range of 2 per cent to 5 per cent. Infosys, HCL Technologies, Tech Mahindra and Persistent Systems were up between 1 per cent and 1.9 per cent.

At 10:03 am; Nifty IT index was the top gainer among sectoral indices up 1.8 per cent, as compared to 0.66 per cent rise in the BSE Sensex.

IT companies in the financial year 2024-25 (FY25) should benefit from large-deal ramp ups and no incremental deterioration in discretionary spending. After a slew of earnings downgrades in previous quarters, Q1FY25 saw no major downgrades, barring a few, analysts at Emkay Global Financial Services said in IT sector report.

Going ahead, the brokerage firm believes interest rate cuts to act as a trigger for revival in discretionary spending and an uptick in technology spending. “With the recent data from the US suggesting high probability of a rate cut in September, we expect this start of the interest rate-cut cycle to be a signal for clients garnering confidence on the inflation trajectory and on macro stability, which may drive demand recovery and an uptick in discretionary spending in CY25,” the brokerage firm said.

The Indian IT Q1FY25 results have been mixed on the revenue growth but on the positive side, most companies indicated green shoots in the spends on discretionary projects as well as some large verticals like BFSI, said Meeta Shetty, Fund Manager at Tata Asset Management.

BFSI sector is the largest contributor to revenue for the large IT companies and has been seeing tepid growth for the last few quarters. The outlook for the BFSI vertical which the companies have provided indicates it has turned back to growth.  Growth is usually a strong margin lever for the companies and if discretionary spends were to comeback in the industry, it can negate the margin pressure, the fund manager said on IT sector's outlook following the Q1FY25 results.

Meanwhile, among individual stocks, TCS has rallied nearly 3 per cent to Rs 4,409.40 on the NSE in intra-day trade today. The stock of IT major was seen inching close to its record high of Rs 4,431 touched on July 29, 2024.

Analysts at Prabhudas Lilladher have a “ACCUMULATE” rating on TCS with a target price of Rs 4,370 per share. The brokerage firm believes the company’s business mix is more favorable to the current enterprise spends which are diverted to stimulate core business functions or bring efficiency to their operations. TCS is well positioned to capture those spends and win disproportionately among its peers, which is very well evident through robust growth and strong executions during the quarter, it added.