IT stocks may regain mojo, index could see price breakout soon

Mumbai: IT stocks might be on the verge of a technical breakout in the near-term, said analysts. With the Nifty IT Index emerging out of a tight band that it has been moving within for most of 2022, analysts expect the benchmark to advance 12.8% from current levels. Infosys, L&T Infotech, Persistent Systems and Saksoft are among their top picks.

"The Nifty IT index has given a fresh breakout from the consolidation range of 26,200-30,200 level, and the first upside target for this breakout is at 34,200 level," said Arpan Shah, technical analyst, Monarch Networth. "Any dip is a strong buying opportunity in some of the stocks like Infy, Persistent, and Saksoft."

The Nifty IT Index, which closed at 30,309 on Monday, rallied from 11,500 in March 2020 to 39,000 levels in January 2022 and currently trading at 30,300 levels. Investors have dumped IT stocks in 2022 on concerns over a likely recession in the US and Europe, cross-currency headwinds and pressure on margins.

In the near term, there is a trading opportunity in IT stocks, said Sushil Sharma, an analyst at Edelweiss Wealth. "But, investors should consider buying aggressively only after clarity in the March quarter of next year," said Sharma. "We prefer large-caps and larger-midcaps such as Infosys, L&T Infotech, Persistent Systems, and L&T Technology Services."

Some analysts are betting that the worst might be over for IT stocks though the sector could be in for some more pain.

"As almost all the bad news in the sector seems to be factored into the price, it looks prudent to take a contra bet on the Indian IT sector from a mid to long-term perspective," said Swapnil Shah, director- of research, Stoxbox.

"In terms of valuation, we believe that the IT sector as a whole is available at attractive multiples vis-a-vis its long-term average and won't be surprised if investors flock to shore up the pack."

"We feel that Indian IT companies are coming out of the selling pressure that we have witnessed in the last 8-10 months as the valuation is relatively cheaper for most of the IT stocks," said Rajesh Sinha, analyst of Bonanza Portfolio. "The Indian IT companies should enjoy benefits from rupee depreciation, their pricing power, and encouraging total contract value."