The Nifty IT rose 10.1% as of June 2, since it fell close to 52-week lows in April, rebounding amid volatility caused by concerns over client spending in the U.S. and Europe.
Some index constituents rose more than 20%, with Persistent Systems Ltd. leading gains at 22%.
It corrected from life-high levels of 39,446.7 last January to hit the recent lows of 26,637.2 in April 2023. The Nifty IT is still 34.5% below its all-time high.
Here's why Nifty IT plunged in April:
Indian information technology stocks have been significantly beaten down since March 2023 due to macroeconomic headwinds and recessionary risks around the world, which have led IT companies to put out lower guidance for FY24.
Banking crises in the U.S. and Europe exacerbated the impact on these stocks, as the banking, financial services, and insurance sectors are major contributors to the IT sector's revenue.
The sector saw the largest outflow from foreign institutional investors at Rs 5,910 crore in the first half of April, as against an inflow of Rs 1,002 crore. During this period, the Nifty IT fell 2.24%, according to Bloomberg data.
The index hit its six-month low of 26,637.2 on April 20, 2023. But since then, it has gained 10.1%, as it closed at 29,328.2 on June 2, 2023.
How Nifty IT Constituents Fared
Persistent Systems has risen 21.8% since April lows, followed by Coforge Ltd. and LTIMindtree Ltd.'s 20.4% and 20.3% gains, respectively.
The net profit of Persistent Systems rose 5.7% quarter-on-quarter in the three months ended March, and its FY23 revenue touched $1 billion.
LTIMindtree's profit grew 11.33% sequentially, while Coforge's profit nearly halved, even as its revenue touched $1 billion in FY23.
Mid-cap stocks within the index earned an average return of 18.5%, beating large-cap stocks, which earned a much lower return of 10.7% over this period. All four mid-cap stocks in the index made it to the top five gainers.
Revenues for all midcaps except Mphasis Ltd. grew in the fourth quarter. This compares to large caps that faced a decline in revenues and a fall or marginal change in profits, except for Tata Consultancy Services Ltd. and LTIMindtree.
How Much Further Upside Remains?
Only four out of the ten stocks in Nifty IT have positive potential returns, with Infosys Ltd. being the only stock exceeding 5% returns, according to analysts.
Although most analysts recommend a 'buy' rating on IT stocks, the lower potential returns reflect the recessionary risks that continue to loom large over these companies in the medium term.
Any growth that may drive the tech sector is likely to be led by large-cap stocks rather than mid-cap stocks, since large-cap potential returns are relatively higher, with three having positive and three having negative returns. All midcap IT stocks have negative potential returns with the exception of Coforge, which has a 1.4% upside.
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