Stocks of IT companies among the top-performing defensive sectors

The Nifty IT index — which comprises of IT companies with largest market capitalisation — has been among the top-performing defensive sectors vis-a-vis pharma and FMCG in recent months.
 
In the last three months, the IT index has delivered returns of 11.44 per cent, whereas the Nifty Pharma has delivered returns of 7.3 per cent. In the same period, the Nifty FMCG has given marginally negative returns.
 
The top IT gainers during this period include NIIT Technologies (30 per cent), Tata Elxsi (27 per cent), Mindtree (24.3 per cent), and Infosys (23.2 per cent). HCL Technologies and Tech Mahindra have given returns of 8 per cent each.
 
The contrast is starker in the one-year period. The Nifty IT has posted gains of 10 per cent, where as the Nifty Pharma has given negative returns of 6 per cent. According to market participants, IT has been on investors’ radar amid expectations of improving global growth and improved IT spending.
 
In the recent Bank of America’s global fund managers’ survey for December, 36 per cent of the respondents said global growth will improve in 2020, up 7 percentage points from November’s survey. This was the highest level since February 2018.
 
Foreign fund managers are seeing greenshoots in global growth with the trade tensions between the US and China receding and the uncertainty around Brexit fading away.

Meanwhile, analysts are of the view that investing in pharma companies has become more volatile.
 
“Pharma companies have been plagued with FDA issues. Also, the possibility of launching big new products is thinning,” said Deepak Jasani, head-retail research at HDFC Securities.
 
“IT companies are more stable. The other attraction is that these companies are known to give back cash to shareholders through buybacks,” Jasani added.
 
The continued weakness in rural demand has led to weak sentiments on the FMCG space.
 
“FMCG companies’ operating margins, which have been improving consistently, could also be at risk from the recent inflationary trends in raw materials,” BNP Paribas said in a note.
 
“Weak income growth and inflationary pressure in categories such as telecom, could make price hikes difficult for the FMCG companies, without hurting volumes,” the note added.