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<\/p>\nThe gauge for the performance of informational technology (IT) stocks soared nearly 5 per cent—most in nearly three years—as growth worries eased following a robust order book posted by bellwether Tata Consultancy Services (TCS).<\/p>\n
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The Nifty IT index rose 4.5 per cent to close at 30,945.<\/p>\n
This was the biggest single-day gain since September 14, 2020.<\/p>\n
Industry titan TCS’ shares rose 5 per cent to Rs 3,509.<\/p>\n
The stock was the biggest gainer and contributor to the Sensex and the Nifty gains.<\/p>\n
Infosys, Tech Mahindra, LTI Mindtree and HCL Tech – each rose close to 4 per cent—were the next biggest gainers on the Nifty.<\/p>\n
The surprise rally in the beaten-down IT stocks came after TCS demonstrated that the order pipeline remains strong for the industry, particularly from newer areas such as artificial intelligence (AI).<\/p>\n
“TCS noted that customers have been re-assessing tech spends, especially where return on investment was low, and it avoided giving any indication of the timing of a demand recovery.<\/p>\n
“However, TCS is optimistic about Generative AI (GenAI) as it is currently working on multiple proof of concepts, with c100 opportunities in the pipeline.<\/p>\n
“We see TCS benefiting, both on demand and cost, from GenAI’s new use cases and higher productivity. We see subsiding macro concerns as key to demand recovery as deal signings ($10.2 billion, book-to-bill: 1.4 times, ex-BSNL) and pipeline remain strong,” said BNP Paribas in a note.<\/p>\n
“Continued strong deal signings give us confidence that the slowdown is transient and we think TCS will gain revenue market share in a cost-focussed demand environment,” it added.<\/p>\n
During the week, the index rose 6.4 per cent, its biggest weekly showing since the week ended July 22, 2022.<\/p>\n
Due to the macroeconomic uncertainties in the developed world, analysts had scaled back growth expectations for the sector.<\/p>\n
As a result, IT stocks saw sharp de-rating and the sector underperformed the market in recent years.<\/p>\n
In the past two-years, the Nifty IT index has risen 5.5 per cent even as the Nifty has rallied 23 per cent.<\/p>\n
Many on the Street were stunned by this week’s rally as the earnings posted by large firms like TCS, Wipro and HCL Technologies failed to meet consensus estimates.<\/p>\n
A report by Nomura said the revenue growth in the ongoing financial year (FY24) could remain muted and once needs to be cautious on the sector.<\/p>\n
“We remain cautious on the India IT services sector.<\/p>\n
“We believe FY24 will likely be a year of revenue growth disappointment and the much-anticipated recovery of operating margin would be delayed given weak growth,” the brokerage said in a note.<\/p>\n
“The macro slowdown and continued high inflation in the developed markets will likely impact the tech budget outlook for most industries in 2023F.<\/p>\n
“We see significant moderation in the revenue growth rate of Indian IT companies in FY24F vs FY23F.<\/p>\n
“We believe the void created by the lower number of small-sized and discretionary projects, along with delays in client decision-making and ramp-up of won projects in certain cases, will lead to both revenue and margin disappointment in the near term, given the ‘sticky’ nature of costs,” Nomura added.<\/p>\n