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Led by strong results from Accenture Plc and Oracle Corp which paved way to anticipation of better results from Indian IT companies in the coming quarters, information technology stocks rallied on Friday. This has resulted in the IT indices climbing four per cent — becoming the largest index gainer for the day.
The BSE IT index climbed up by 4.02 per cent on Friday, when the broader index — Sensex — went up by 2.53 per cent. On the NSE, CNX IT went up 4.06 per cent.
The results of the two companies topped analyst estimates, with Accenture's revenues growing by 17 per cent (in dollar terms) and Oracle's revenues growing by 30 per cent.
FT, Infosys lead
The rise in the BSE IT index was mainly led by Financial Technologies (FT), Infosys and Wipro. The FT stock went up by around seven per cent to end the day at Rs 822.60. The Infosys stock was up by 5.23 per cent closing at Rs 3,162, while Wipro closed at Rs 455.85.
“IT stocks have shown robust growth and are expected to perform better. However, the rally in IT stocks was steep and they have become slightly more expensive. Investors need to take care to see that they do not invest in a hurry in a runaway market like this,” said Mr K Jayaraman, Consultant and Equity Research Advisor, Bonanza Portfolio.
Underperformer
The BSE IT index has gone up by 5.8 per cent in the last seven months. However, this calendar year, to date, the index dropped by 0.4 per cent. According to a report by Nomura, during the past three months, both Infosys and TCS have fallen by 7–12 per cent in absolute terms, against a 10 per cent decline in the Nifty Index. “We believe that the fall is largely due to an increase in global investor preference for MNC stocks over the Indian IT players because of significant increase in valuation differentials, which have narrowed after the correction in the Indian IT stocks and improving growth outlook at MNC players, coupled with margin improvements,” explained the report.
However, other factors that have led to the surge in IT stock prices have been the standard long-term contracts, good order books and the fact that investors are now using these stocks to cushion their possible losses in an unpredictable market.
“IT stocks have now become more of a defensive bet, owing to their good, long–term performance prospects. Earlier, FMCG stocks were seen as a good defensive bet. Now, whenever there is uncertainty in the market, investors take cover in these stocks,” said Mr Jagannadham Thunuguntla, Head of Research, SMC India.
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