IT stocks rally post TCS Q3 results; Nifty IT index scales record high

Shares of information technology (IT) companies continued their upward march in Monday's session, with Nifty IT index rising 2 per cent to scale a fresh record high on the National Stock Exchange (NSE), after sector giant Tata Consultancy Services (TCS) posted better-than-expected results for the quarter ended December 2020 (Q3FY21).

At 09:59 am, Nifty IT index, the top gainer among sectoral indices, was up 1.8 per cent at 26,643 as compared to a 0.87-per cent rise in the Nifty50 index at 14,472. The IT index hit a fresh record high of 26,808 in intra-day trade. In the past two months, it has outperformed the market by surging 26 per cent, as compared to a 14-per cent gain in the benchmark index.

Infosys, Wipro, MphasiS and HCL Technologies from the Nifty IT index were up between 2 per cent and 3 per cent. Ramco Systems, Birlasoft, Tata Elxsi and Intellect Design Area, among non-index stocks, were up more than 3 per cent each.

Shares of TCS hit a fresh record high of Rs 3,230, up 3.5 per cent, on the NSE in early morning trade after brokerages maintained 'buy' ratings on the stock. The company's Q3FY21 numbers were above analysts' estimates on all fronts. The company said it could return to a double-digit growth trajectory next year. CLICK HERE TO READ FULL REPORT

Analysts at ICICI Securities believe growing virtualisation of business is driving multi-year growth in IT spends. We believe IT companies will be key beneficiaries of this multi-year technology transformation phase, it said.

In the current phase, enterprises are building a cloud-based foundation that will serve as a resilient, secure and scalable digital core. In subsequent phases, enterprises will see new-age technologies developed around the cloud and will lead to new business models & differentiated customer experiences, the brokerage firm added.

Meanwhile, Infosys and Wipro are scheduled to announce their Q3 results on Wednesday, January 13, 2021. The board of directors of HCL Technologies, on the other hand, are scheduled to meet on Friday, January 15, to consider and approve Q3 results.

Despite rich valuations, analysts remain bullish on the sector as major crises have historically been a boon for the Indian IT industry. 

"The IT index meaningfully outperformed the broader market index since the Covid-19 lows made in March 2020. While the sector’s valuation seems rich, it should not be viewed in isolation. Various aspects such as the macro environment, technology
cycle, and earnings expectations should be factored in. We believe FY22-23E will be another watershed moment for the Indian IT sector with companies witnessing healthy growth and margin expansion," Edelweiss Securities said in a report.

The fortitude of Indian IT firms can be gauged from their ability to successfully ride multiple technology waves with manifold growth – from $8 billion in FY00 to $191 billion in FY20. "Despite being labelled a labour-arbitrage industry, Indian IT companies have (a) delivered higher margins (v/s the best global tech companies) along with healthy free cash flows, and (b) gained market share in the largely fragmented global IT services sector," the report added.

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