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IT: Stocks correction amid mixed near-term signals
The Indian IT stocks witnessed a correction during the week amid a rate cut by US FED. A key reason for the correction can be attributed to the appreciation of INR against the US dollar which remains detrimental for the Indian IT. It was also compounded by Accenture’s decision to delay staff promotions to June from December, reflecting a challenging consultancy environment dampening optimism and raising concerns about broader impacts on employee growth and sector performance. Moreover, we see that Nifty IT has had a run-up of 30%+ from June and so now this correction can be seen as the index cooling off a bit.
While a 50-basis point cut in interest rate by US FED, is expected to prompt a revival in the discretionary demand for IT services companies, the final impact may become evident by FY26 only. Despite the likely medium term positive outlook for future spending, near term impact will also be determined by US election outcome.
Our outlook remains positive in selective areas where the discretionary demand will pick up, but we believe overall broader growth shall return in FY26 only. We continue to be selectively positive where there are tailwinds of superior growth, AI led investment or discretionary spend pick up and we prefer Sonata, Firstsource and Birlasoft in the small to mid-cap space and TechM in the large cap space.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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