IT shares buck trend; Wipro, Infy, TechM gain 2%; Coforge hits new high

Shares of information technology (IT) companies were trading firm, gaining up to 2 per cent on the National Stock Exchange (NSE) in Friday’s intra-day trade in an otherwise slippery market on anticipation of growth momentum to return in the financial year 2024-25 (FY25) aided by lower-base coupled with easing sector headwinds.

 

Meanwhile, the US Federal Reserve cut interest rates again but with a lower magnitude of 0.25 per cent on Thursday, after a 0.50 per cent cut in the last meeting. Analysts expect the US Federal Reserve to opt for a smaller pace of rate cut in December meeting as long as inflation continues to moderate.

 

 

At 12:23 pm; the Nifty IT index, was the top gainer among sectoral indices, up 1 per cent, as compared to 0.31 per cent decline in the Nifty 50. Though the IT sector has already outperformed Nifty last year, analysts expect overall outperformance in calendar year 2024 as well driven by receding headwinds and better earnings visibility.

 

Among individual stocks, Wipro, Infosys and Tech Mahindra were up 2 per cent. Coforge hit a new high of Rs 8,030, gaining 2 per cent on the NSE.

 

Meanwhile, in the past one month and six months, the BSE IT index has gained 1.5 per cent and 23 per cent, respectively. In comparison, the BSE Sensex was down nearly 3 per cent and up 8 per cent, respectively.

 

Analysts at Emkay Global Financial Services believe an uptick in technology spending in CY25 hinges on confidence in macro stability and resilience of the US economy after the start of the interest rate-cut cycle.

 

Given the constructive recovery in H1FY25 with some green shoots in discretionary spends, enterprises are accelerating the critical transformation programs while emphasizing the cost parameters. Again, the GenAI component has become an integral part of large deals. In this scenario, enterprises are gradually transitioning to front-end or growth-led initiatives vs disproportionate focus on cost-savings earlier. 

 

Analysts at Prabhudas Lilladher remain positive on the companies having built full-stack front-end capabilities and delivered quality execution at scale. However, the brokerage firm expects margin pressure to continue in the near-term across names, as levers are fully optimized, and incremental growth would be volume driven. “We remain selective on both Tier-1 and Tier-2 names that have a diversified business mix and are trading at inexpensive valuation,” the brokerage firm said.

 

“Although margin recovery in Q2 was fairly above our estimates, anticipated softness with deferral of wage hikes to H2 (for a few names), and fully optimized levers provide limited room for further improvement in FY25,” analysts said.