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Business News/ Markets / Stock Markets/  TCS, Tech Mahindra, Persistent Systems among top bets as IT stocks surge 22-92% from their 52-week lows

TCS, Tech Mahindra, Persistent Systems among top bets as IT stocks surge 22-92% from their 52-week lows

IT stocks have bounced back in recent months, with the Nifty IT index hitting a fresh 52-week high on September 15. The upswing in sentiment can be attributed to improved order books of companies, stable US inflation, reduced fears of a US recession, and consolidation deals within IT companies.

 In about five months, the Nifty IT pack has jumped over 26 per cent from its 52-week low. (Mint) (MINT_PRINT)Premium
In about five months, the Nifty IT pack has jumped over 26 per cent from its 52-week low. (Mint) (MINT_PRINT)

Indian stock market: Only a few months ago, a significant portion of market participants exhibited caution towards IT stocks. Their apprehension stemmed from concerns about a potential economic slowdown in the Western markets, which represent a substantial customer base for Indian IT firms. This apprehension was primarily driven by the fear that such a downturn could significantly impact the revenue and profitability of domestic IT services companies.

The concerns were justified to some extent as the Nifty IT pack gave negative returns on a monthly basis for three consecutive months from February to April this year. The Nifty IT pack hit its 52-week low of 26,184.45 on April 17, 2023. Since then, IT stocks have covered a lot of distance.

The Nifty IT index hit its fresh 52-week high of 33,387.30 in morning trade on Friday (September 15). In about five months, the Nifty IT pack has jumped over 26 per cent from its 52-week low. Equity benchmark Nifty50, which is at its record high, is up 20 per cent from its 52-week lows.

Every stock within the Nifty IT index has surged by over 20 per cent from its lowest point in the past 52 weeks. Shares of Persistent Systems have surged 92 per cent from their 52-week low level while those of Coforge have jumped 70 from their one-year low level.

HCL Tech share price (up 46 per cent), Tech Mahindra share price (up 30 per cent), Infosys share price (up 27 per cent), Wipro share price (up 24 per cent) and TCS share price (up 22 per cent) have each gained in this order from their 52-week low levels.

Out of the IT index constituents, Wipro and TCS are the only two stocks that have shown relative underperformance when measuring their gains from their respective 52-week lows. In contrast, every other stock in the IT index has demonstrated superior performance compared to the equity benchmark Nifty when considering their gains from their 52-week lows. This is clear from the chart below.

Rise of Nifty IT stocks, NIfty IT and Nifty50 from their 52-week lows.
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Rise of Nifty IT stocks, NIfty IT and Nifty50 from their 52-week lows. (NSE)

Why are IT stocks rising?

Sentiment has improved for the IT stocks primarily because the concerns around a recession in the US have eased. Also, there are strong expectations that the US Fed will not hike rates from the current levels as the US inflation numbers have been stable in the last few months.

Since most negatives for the IT sector are already factored in, investors started observing value in IT stocks after the strong correction in the sector.

"IT stocks are rising on account of improvement in order book intake, margins and on attrition front, which was under the scanner of a majority of Indian investors. Besides, a Fed interest rate hike is not expected in the near term. Recent data suggests that bringing US inflation down to an acceptable level would not result in a recession. The US geography makes up nearly 60 per cent of Indian IT services revenues, and improving economic outlook in the region could help drive higher technology spending," said Deepak Jasani, Head of Retail Research, HDFC Securities.

Aamar Deo Singh, Head of Advisory at Angel One observed that the US Nasdaq, the index mirroring technology stocks performance, has risen by almost 20 per cent in the past year which has also lent support and positive investor sentiment. Along with this, receding US recessionary fears and reduced expectations of further rate hikes in the US appear to have further bolstered the outlook of tech companies, both in India and abroad.

Shrey Jain, Founder and CEO of SAS Online, believes the precise reasons for the IT sector's upswing can be attributed to the stable inflation figures in the US, reduced apprehension of a recession, and significant consolidation deals unfolding within IT companies resulting in the creation of a robust pipeline.

If we talk about technical factors, Gaurav Bissa, VP at InCred Equities pointed out that the Nifty IT index was in a 15-month consolidation and it has finally witnessed a strong breakout on the weekly charts.

Bissa underscored that the RSI has also witnessed a breakout which gave a stronger push to the stock price and is currently trading near 69 levels.

"Once the RSI trades above 70, it is expected to give a further push which can catapult the index towards the 36,000 level. This is supported by the breakout seen in point and figure charts which has a cluster count at 36,000 level," said Bissa.

Should you buy IT stocks at this juncture?

Despite the substantial recent gains in various IT stocks, industry experts continue to identify underlying value in these investments. Some experts recommend a staggered approach to buying these stocks or advocate utilising systematic investment plans (SIPs) as prudent strategies for entering the market.

"Considering the better growth driven by cost synergies, and improving operational levers such as attrition, pyramid rationalisation, operating leverage and valuation, one should buy the IT stock in an SIP mode at this juncture," said Jasani.

Some analysts believe booking some profit at this juncture would be a good idea and one can buy IT stocks if they see some correction.

Singh of Angel One believes investors need to exercise caution at entering IT stocks at the current juncture as most of them have generated superior returns in the past one year, and it would ideally be best to book some profits, rather than make a fresh entry at current levels.

"IT stocks such as L&T Technology, Ltimindtree, Mphasis, HCL Tech, and Tech Mahindra clocked gains of over 20 per cent year-to-date (YTD), while Coforge stock clocked more than 40 per cent gains and Persistent outperformed all, with 50 per cent gains YTD. Such superior returns should be booked at least in part by investors, and only on significant corrections, one should look at adding a couple of these IT stocks to their overall portfolio," said Singh.

Bissa said one can buy IT stocks at the current juncture, but the focus should be more on the large caps. Midcap IT stocks have already seen a strong move in the last one year with strong outperformance against their larger peers. Now, the largecap stocks are witnessing strong breakouts and are driving the index higher providing lucrative buying opportunities along the way.

What IT stocks should you buy?

Jasani's favourite stocks are LTI Mindtree, Persistent Systems, Sonata Software and Birlasoft.

Bissa said stocks like Infosys, TCS, Wipro, and Tech Mahindra look good in the IT space.

Jain of SAS Online is optimistic about Infosys, Tech Mahindra, TCS, and HCL Tech.

Singh of Angel One said from a long-term perspective, one should invest in two to three IT stocks, one from the largecap and one or two from the midcap space.

"Amongst the largecap, one can look at accumulating TCS from a longer-term perspective, whereas from a shorter-term perspective, one can look at the likes of Tech Mahindra, Persistent and L&T Technology, to name a few. But at the current market levels, one needs to be cautious while investing and should look at accumulating decent corrections, in a SIP mode, from a longer-term perspective, with IT being one of the sectors in one’s overall portfolio," said Singh.

"Infosys and TCS are witnessing fresh breakout on daily charts whereas Tech Mahindra and Wipro are rising after exhibiting base formation on the daily charts, said Bissa.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 15 Sep 2023, 11:29 AM IST
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