IT stocks witnessed a sharp rebound in Wednesday's trading session on March 18, with the Nifty IT index rising over 4% and snapping its six-day losing run. All constituents in the IT pack were trading in the green, rising as much as 5%.
The Nifty IT pack rose to 29,939.65 as against the last closing price of 28,760.90 on the NSE, recording a 4.098% rise. The index had hit an over three-year low in the last trading session and shed almost 5% during the six-day fall.
Among index heavyweights, Infosys and HCL Technologies led the gainers as both rose 4% while Tata Consultancy Services (TCS) and Wipro jumped 3.6% and 3.17%, respectively.
Coforge led the rally with a 5.7% gain, followed by Oracle Financial Services Software and Persistent Systems, which each rose by over 5%.
Despite today's rise, the Nifty IT index remains 2% lower for the month after a 20% decline in February amid worries that artificial intelligence could disrupt the labour-intensive Indian IT services sector, weighing on order pipeline and topline.
Why are IT stocks rising?
The sharp decline in IT stocks in the last two months has improved their valuations, with some analysts calling today's rise a "tactical rebound".
A CNBC TV-18 report cited global brokerage CLSA as saying that the IT services sector appears attractive on a risk-reward basis, providing a leg-up to the IT stocks.
The brokerage has maintained its outperform ratings on Coforge, Infosys, Tech Mahindra, TCS and LTIMindtree, along with Hold calls on HCL Tech and Wipro, as per the CNBC TV-18 report.
CLSA has said following its discussions with TCS, Infosys, HCL Tech and Wipro that there is “no evidence of increased pricing pressure in renewed contracts due to the latest artificial intelligence tools from Anthropic and OpenAI.”
According to NSE data, IT stocks have tumbled up to 18% in a month, with all constituents witnessing a decline. The fall is even sharper to the tune of 22-43% from 52-week highs.
Echoing similar views, G Chokkalingam, Founder and Head of Research at Equinomics Research, said that many IT stocks have been heavily beaten down, which makes current valuations more attractive. He added that a short-term upside of around 10-15% is possible, however, cautioning that the AI threat is real.
Apart from valuations, other factors that are supporting today's rise are initiatives by Indian companies to integrate AI into their platforms and rupee depreciation. IT earnings are largely dollar-dominated, and a weak Indian rupee works in their favour.
Therefore, market veteran Chokkalingam believes that due to these factors, there is a scope for a tactical rebound in the short term, but beyond that, the medium- to long-term outlook remains weak.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
