The IT sector has taken the lead in the recent market rally, drawing positive sentiments from experts. Among the 50-scrip Indian equity benchmark Nifty50, the IT pack holds the second-largest weightage, following financial services. Notably, major stocks in the IT sector have outperformed the market in recent times.
Vinit Sambre, Head of Equities at DSP Investment Managers, expressed optimism about the IT sector’s growth prospects. He emphasized that the sector provides visibility for the next one or two years, with strengthening growth prospects. Despite concerns about high valuations, Sambre believes that the trend of robust demand momentum is likely to persist, justifying the current valuation levels.
While acknowledging that IT stocks may seem to be trading at a higher range, Sambre argues that such valuations are justified given the prevailing market conditions. The top five IT services providers in India have witnessed significant stock price increases, ranging from 61 to 130 percent over the past year. In the current year, Tata Consultancy Services (TCS), Infosys, Wipro, Tech Mahindra, and HCL Technologies have all registered substantial gains.
The Nifty IT index, tracking 10 major players in the sector, has delivered a remarkable return of 38 percent in 2021, outperforming the benchmark Nifty50’s 18 percent return. Sambre noted that the confidence emanating from IT company managements, along with positive narratives and financial metrics, contributes to the sector’s appeal. Despite the elusive growth in the past, Sambre believes that once growth metrics rebound, IT stocks deserve to trade at a premium valuation.
Indian IT companies have recently showcased one of their best performances, with many of them presenting an improved outlook for Q1 FY22.