Nifty IT index rallies 3% post HCLTech Q4 earnings. Should you buy IT stks?

HCL Technologies' Q4FY25 performance, albeit soft, was better than expected and its guidance was largely along expected lines.

Nifty IT gains: The information technology index, Nifty IT has rallied 3 per cent to hit 35,057.80 on the National Stock Exchange (NSE) in Wednesday’s intra-day trade after a sharp up move in frontline IT stocks. At 09:25 am, the Nifty IT index, the top gainer among sectoral indices, was up 3.3 per cent, as compared to the 0.76 per cent rise in the Nifty 50.

 

IT stocks' performance today  Shares of IT companies have rallied by up to 7 per cent on the NSE in Wednesday’s intra-day trade. HCL Technologies share price surged 7 per cent to ₹1,582.30. Coforge, Tech Mahindra and Mphasis are up 4 per cent each on the NSE. LTIMindtree, Persistent Systems, Infosys, Wipro and Tata Consultancy Services (TCS) are up in the range of 2 per cent to 3 per cent.

 

 

Past performance of Nifty IT index, IT stocks

However, thus far in the calendar year 2025, the Nifty IT index has underperformed the market by falling 19 per cent, as compared to the 2.4 per cent rise in the Nifty 50. TCS, Infosys, HCL Technologies, Tech Mahindra, Wipro and LTIMindtree are down between 16 per cent and 22 per cent on growth concerns.

 

The increased probability of a slowdown/recession in the US, along with uncertainty on US tariffs and its impact on the supply chain, may weigh on client decision-making in the near-term and derail any hope of uptick in tech spending (particularly discretionary spending), or growth in calendar year 2025 (CY25), according to analysts.

 

What's driving IT stocks today?  Today’s up move in IT stocks came after the Nasdaq Composite rose 429.52 points, or 2.71 per cent, to 16,300.42 on Tuesday. The performance of HCL Technologies, India’s third-largest software company by market capitalisation, during the March 2025 quarter (Q4FY25), albeit soft, was better than expected and its guidance was largely along expected lines.

 

HCL Tech expects revenue growth to be in the range of 2 per cent to 5 per cent on constant currency (CC) terms. That is lower than the guidance it provided over the past few years, but still higher than its larger rival, Infosys, which expects to grow between 0 per cent and 3 per cent.

 

HCL Tech reported a soft Q4, largely due to the seasonal nature of its software business. The company achieved record net new bookings of US$3 billion in Q4, with FY25 total contract value (TCV) reaching $9.4 billion (with ER&D being a key driver). Moreover, they noted no deal cancellations, barring shelving of one large deal, and flagged a potential uptick in fresher hiring amid strong pipeline visibility, ICICI Securities said in a note.

 

While macro pressures and subdued discretionary spending, especially in retail and manufacturing (auto), could pose near-term headwinds, management remains cautiously optimistic, guiding for 2–5 per cent revenue growth (organic growth of 1-4 per cent) and 18–19 per cent earnings before interest tax (EBIT) margins in FY26, with lower band of revenue guidance reflecting weak scenario while upper band being current steady state, the brokerage firm said.

 

What happened to IT services during 2009 and 2020 crises?

 

According to Kotak Institutional Equities, the IT services industry was more impacted during 2009 crisis than the 2020 one due to a combination of factors, such as the heavy impact on financial services, the largest vertical for Indian IT companies, apart from enterprises focusing on cost efficiencies in tech spending and cutting down ‘change’ budgets after a period of high spending to incorporate new technology systems into businesses. This led to a quick shift from boom to bust. 

 

During the 2020 crisis, IT became the savior enabling businesses to continue serving customers despite lockdowns and social distancing through online channels. Discretionary spending shot up to enable quick migration to cloud and increase digitisation and digitalisation of operations. The recession in IT was short-lived compared to the time period for recovery in overall economic growth. IT services spending grew at the highest rate ever in 2021 and 2022 after muted growth in 2020, the brokerage firm said in its IT Services report dated April 7, 2025.

 

Analysts at Kotak Institutional Equities believe there are two approaches to estimate the multiples at which stocks bottom out; a comparison of multiples at which stocks bottomed out in earlier recessions and an analysis based on first principles. The historical approach indicates that sector leaders bottomed out at 11X 1-year forward earnings (based on Bloomberg consensus estimates) in 2009 (Infosys), while during Covid the sector leader (TCS) bottomed out at 18X 1-year forward earnings. The competitive positioning of companies has changed compared to the past. Analysts believe that stocks will bottom out at a different multiple than earlier.