Most IT stocks traded higher in intraday trade on Thursday, 1 October, defying weak market sentiment. Stocks such as Mphasis (up 5%), Coforge (up 4%), Infosys (up 3%), HCL Technologies (up 2%), TCS (up 2%), Tech Mahindra (up 2%), and Wipro (up 1.5%) rose between 1-5% intraday, driving their sectoral index Nifty IT up over 2%, while benchmark Nifty 50 declined by more than 1% during the session.
Why are IT stocks rising?
The Nifty IT index is in the green for the second consecutive session amid a rise in the US dollar and the rupee’s weakness.
The dollar index rose to 101.71 on Thursday, while the Indian rupee traded near the 96 per dollar mark.
Since Indian IT companies earn a major chunk of their revenues in the US dollar, a weaker rupee against the dollar increased their operational margins in rupee terms.
To some extent, a positive view of the global financial firm Morgan Stanley has also influenced sentiment.
According to media reports, Morgan Stanley has initiated coverage on Persistent Systems and Hexaware with an ‘overweight’ rating.
Shares of Persistent Systems rose by 1.5%, while those of Hexaware Technologies rose nearly 2% during the session. However, both stocks were volatile and slipped into the red during the session.
IT sector Q2FY27 results preview
Brokerage firm JM Financial expects mid-tier IT revenue to grow 2.7–13% quarter-on-quarter (QoQ) and 5.4–47% year-on-year (YoY) in constant currency (cc) versus -0.5% to 2.6% cc QoQ for large companies, largely driven by execution.
“Mid-tier IT is likely to deliver double-digit organic revenue growth in FY27, with strong growth in the first half, while large tiers are still working towards achieving mid-single-digit revenue growth in FY27,” JM Financial said.
“Despite trading at nearly 75% premium to large tiers, we expect the valuation premium for mid-tier IT to sustain or potentially widen near-term, given better near-term earnings growth visibility, the brokerage firm added.
According to Emkay Global, large-cap IT companies may deliver a soft quarter, while select mid-caps may outperform.
“Cross-currency is expected to have a marginal impact on reported dollar revenue growth in Q2. Tier-1 companies are expected to post CC revenue growth of -1.0% to 3.1%, while reported USD revenue growth would be pulled back by 10-20bps, given cross-currency headwinds. Tier-2 companies may see CC revenue growth of 0.5% to 8.0% (barring Coforge at 12.6%, given contribution from Encora), with headwinds of 0-30bps on reported USD revenue,” said Emkay.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
