Nifty IT index gains 5% in three days; TCS, Infosys up over 4% in intra-day

Shares of information technology (IT) companies are trading higher for the third straight session, with the Nifty IT index gaining 5% so far during this period on value buying.

Tata Consultancy Services (TCS) and Infosys, from the index, are up 4% each at Rs 1,961 and Rs 663, respectively. NIIT Technologies, Mindtree, Tata Elxsi, Tech Mahindra and HCL Technologies are up in the range of 1% to 3% on the National Stock Exchange (NSE).

At 01:37 pm, Nifty IT index, the largest gainer among sectoral indices, was up 2.5%, as compared to a 0.42% rise in the Nifty 50 index. In the last three days, IT index has surged 5.4% against 2.1% gained in the benchmark index.

In the past two months, Nifty IT index had underperformed the market by falling 15%, due to the strengthening of the rupee against US dollar. In comparison, the Nifty 50 index had declined 5% till Thursday.

In the previous quarter, organic constant currency revenue growth accelerated for the fourth consecutive quarter, on expected lines. Against expectations of a strong Q2FY19, backed by the combination of seasonality and cyclical impetus, there were instances of revenue miss across a few companies outside the large cap IT stocks. The currency's support to margins was reflected in beat at Wipro, Tech Mahindra, KPIT Technologies, NIIT Technologies and Persistent Systems.

“Given the order book across the board, we expects a partial offset to weak Q3 (October-December) seasonality and continued acceleration in revenue growth on an aggregate level. On the other hand, we will keep a close eye on the margins given the appetite for Digital investments and sporadic comments of tight market for local labor in the US,” Motilal Oswal securities said in sector update.

Analysts at Edelweiss Securities believe the rapid adoption of new-age (digital) technologies will be the key growth driver of Indian IT services companies. Digital has gained significant heft (~30% of revenue) without losing its robust growth momentum (>30% YoY).

Also, significant rise in profitability of US companies is driving demand (>65% revenue for Indian IT service companies). Tax Cuts and Jobs Act (TCJA) is expected to cut statutory tax rate from 35% to 21% in the US; this will lead to higher discretionary spends, particularly in BFSI and retail industries, leading to more investment in technology, the brokerage firm said in report ‘India Strategy 2019’.