Tech stocks rally up to 18% in a week, Is the worst over for IT pack?

New Delhi: After a sharp beatdown over the past few weeks, IT stocks emerged as the best performers, rising up to 18 per cent in the last five sessions from the close on the first Friday of August 2022.

IT stocks in the recent weeks have remained under pressure lately, with stocks eroding up to two-third of their values from their respective 52-week highs, thanks to muted financial performance and pressure on margins.

Amid the buzz recession buzz, investors are pondering if the worst is over for IT stocks.

“In the near term, maybe for a quarter or two, we may not see too much disappointment on the revenue front but for the next year, definitely the uncertainty on revenues is much higher,” says Abhishek Bhandari, Senior Research Analyst, Nomura.

He remains very cautious on the sectors citing uncertainty on revenues in the next fiscal years, despite a strong order book and execution by the Indian IT players.

In last one week, Tanla Platforms led the IT pack with a 18 per cent rise, followed by Firstsource Solutions, Nazara Technologies and 3I Infotech rising between 10-12 per cent each.

Mid and smallcap IT counters including Sonata Software, NIIT, RPSG Ventures, R Systems International, Sasken Technologies, Newgen Software Technologies and Mphasis gained up to 8 per cent during the week.

Bluechip IT counters such as Tech Mahindra gained 7 per cent, whereas Infosys added 4 per cent. TCS, HCL Tech and Wipro also settled with mild gains.

On the contrary other analysts believe that some of the technology businesses are very attractively priced given their sound cash flows, management bandwidth and strength, along with share buybacks and strong dividend payouts.

All the spending is going into IT, whether it is in terms of digitalisation, cloud migration or Blockchain. These are strategic spends and not discretionary in nature, said Nitin Raheja, Executive Director, Head - Discretionary Equities, Julius Baer Wealth Advisors.

"I really do not see how IT spends will come off. Yes, surely some of the so-called new age dotcom businesses will find funding difficult but for a lot of businesses, this spend is here to stay," said Raheja, who sees value in this underperforming sector.

Other market analysts suggest that investors should stick with larger IT companies with larger order books and stronger client relationships in pursuit of safety amid the rising fears of recessions.

The midcap names do have a very high growth rates and some of them are excellent and really very good companies but in this environment, it is safer to play and stick with the larger names, said Jonathan Schiessl, Deputy CIO, Westminster Asset Management

"Clearly the whole group benefits from currency weakness of the Indian rupee and that is the positive side," he added. "On the negative side, a global recession will impact their business."

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)