Published 17:05 IST, January 17th 2024

Indian IT stocks likely to attract strong fund flows amid positive earnings

The impressive revenue growth reported by leading IT firms like TCS and Infosys has been a key driver behind the outperformance of IT stocks in January.

Reported by: Business Desk
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IT stocks India | Image: Freepik
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IT stocks in India: information techlogy (IT) stocks in India are poised to attract increased fund flows from both local and global investors in next two quarters, analysts predict, buoyed by positive sentiment surrounding a soft landing of US ecomy and better-than-expected earnings.

In final two months of 2023, shares of India's IT companies, which significantly contribute to ir revenue from US, experienced a table surge of 16.13 per cent, surpassing benchmark Nifty 50's gain of 13.9 per cent.

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impressive revenue growth reported by leing IT firms like Tata Consultancy Services and Infosys has been a key driver behind outperformance of IT stocks in January. Nifty IT index recorded a gain of about 4 per cent this month, in contrast to 0.3 per cent drop in Nifty 50 index.

Sanjay Bembalkar, co-he of equities at Union Mutual Fund, tes, "We believe IT sector is going through a classical sector rotation tre in favour of it. We expect investors, both foreign and domestic, to increase allocations furr on clarity over change in monetary policy stance in US"

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Although approximately one-third of analysts covering IT companies in Nifty 50 index currently hold an equivalent of "sell" or "strong sell" recommendations on stocks, analysts anticipate a shift as foreign portfolio investors (FPI) are likely to return to sector.

Foreign portfolio investors me modest purchases of Rs 908 crore in fiscal 2024, a fraction of ir total investment of Rs 1.97 lakh crore. With IT having second-highest sectoral weight of 13.62 per cent in Nifty 50 index, it secured only 0.46 per cent of total FPI purchases in fiscal year so far.

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"FPI holding of India's IT services sector is materially below last 10-year aver," tes Kumar Rakesh, associate director of equity research at BNP Paribas. He anticipates increased FPI buying in 2024, marking a cyclical recovery for sector.

Market leers TCS and Infosys reported third-quarter revenue growth that exceeded expectations, accompanied by optimistic forecasts. Santosh Pandey, he of Nuvama Professional Clients Group, states, "This time commentary is backed by sustained strong deal booking and expectation that after three to four quarters of project re-prioritization, we have crossed point of maximum pain." Pandey expects heightened buying interest in IT stocks over next three to four months, leing up to ir March-quarter earnings when se companies provide annual growth guidance.

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(With Reuters inputs.)
 

17:05 IST, January 17th 2024