Home/ Markets / Stock Markets/  IT stocks in focus after continuous rally on Nasdaq. Details here

Stocks in focus: Following rally at US' Nasdaq index in last one month, IT and tech stocks on the Dalal Street have suddenly started grabbing attention of bulls. Talks of IT stocks bottoming out have started to resurface as Nasdaq is heavily dominated by IT stocks and Indian IT stocks closely follow the movement of Nasdaq Composite index at the Wall Street. In last one week, Nasdaq rallied on three successive sessions whereas Indian IT majors like TCS, Wipro, Infosys, Tata Elxsi, etc. have registered up to 5 per cent rise in last one week. As 5 big tech stocks listed at Nasdaq — Microsoft, Google, Meta Platforms, Apple and Amazon are going to announce its quarterly earning next week, Indian bulls are expecting trend reversal in Indian IT stocks, if these tech giants manages to give strong earnings next week.

Cue from Nasdaq index

Speaking on Indian IT stocks and its Nasdaq connection, Sandeep Pandey, Director at Basav Capital Advisory said, "It's true that Indian It stocks follow Nasdaq index but one needs to know what drives Nasdaq. For information to Indian bulls awaiting trend reversal in IT stocks, Nasdaq Composite is driven by two factors — US job data and US GDP data. These two are still weak and hence recent rally in 3 out of 5 sessions last week should be seen as a relief rally only. Around 48 per cent of the Nasdaq listed stocks are from the IT segment and Indian IT companies draw majority of its business from these IT companies. So, Indian It stocks following Nasdaq is natural but those awaiting trend reversal in Indian IT stocks are advised to wait for few more US job and GDP numbers as consumption needs to go up in the US economy to come out of the looming slowdown woes."

Here, readers must note that US Q2  gross domestic product (GDP) data is scheduled for release on 28th July 2022. So, any positive outcome from this release may fuel buying interest at the Nasdaq index.

Highlighting upon the important triggers that one should remain vigilant about, Divam Sharma, Founder at Green Portfolio said, "Nasdaq had witnessed a major correction in CY2022 falling from 16200 levels to 11300. The index has shown this kind of a drastic drawdown after 2 decades (i.e. Dotcom bubble). The tech heavy index is currently trading at a PE multiple of 22 and is considering the pricing in of the major macro-economic worries. We believe that Nasdaq listed companies will continue to dominate their space and command a premium over the coming years. It will also lead the recovery in markets. Investors can consider allocating some part of their capital towards Nasdaq ETF’s."

Outlook for Indian IT stocks

On his take on Indian IT stocks, Divam Sharma of Green Portfolio added, "Indian IT stocks, are facing headwinds in terms of outlook as we see economic uncertainties across major importing nations of their services. They are also facing an issue of attrition with increasing challenges to maintain their margins. We believe that there could be some more correction going forward."

Echoing with Divam Sharma of Green Portfolio, Ram Kalyan Medury, Founder & CEO at Jama Wealth said, "The IT sector has been having a tough time of late. While various sectoral indices are seeing some turn around, the IT index has seen most of its basket stocks struggling below their 200 day moving averages. It is difficult to say whether any sector has bottomed out, at any point in time. As long term advisors we always look for good quality companies regardless of the price action. IT bottoming out is closely linked to the index itself bottoming out, which again is difficult to say given the global uncertainties, and the looming recession in the US which has already seen two quarters of negative GP growth. If the Fed raises interest rates further IT stocks could see another round of correction."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

Asit Manohar
Chief Content Producer at Live Mint Digital Team
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Updated: 24 Jul 2022, 10:33 AM IST
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