Nifty IT Surges 1.3% as Nifty 50 and Sensex Hit Record Highs, Driven by Midcap Stocks

<ul>
  <li>The Nifty IT Index rebounded 1.3% on Thursday, emerging as one of the top sectoral performers.</li>
  <li>This rebound comes after the index had fallen up to 4.7% year-to-date and around 2.5% in the fiscal year.</li>
  <li>Notable gainers included Coforge, Persistent, TCS, Mphasis, LTIMindtree, and Infosys, with share prices rising up to 4%.</li>
</ul>
<p><strong>Discover the latest developments in the Nifty IT Index and what it means for investors in the tech sector.</strong></p>
<h2><strong>Analysts Don't See Much Change in Outlook</strong></h2>
<p>The subdued outlook of IT companies, which was expected to reset post-Q4 results, has not materialized amidst uncertain macroeconomic conditions during FY25. Growth reported was muted, and margin improvement was not very encouraging, according to analysts. The focus was on growth guidance and the FY25 outlook, which still remains muted.</p>
<h3><strong>Recovery Hopes Remain Delayed</strong></h3>
<p>Topline performance is still being impacted by volatility in three primary verticals: BFSI, Retail, and Communications. While most firms in BFSI reported either muted or positive USD growth (median +1.9% sequentially), retail growth has been sluggish (median negative 2.3% sequentially), according to Prabhudas Lilladher data.</p>
<p>Prabhudas Lilladher analysts also noted that the suggested FY25 outlook across the board has been lackluster and has fallen below expectations. This has triggered sharper share price corrections in Tier-2 names compared to Tier-1, but has led to a convergence in the valuation gap.</p>
<p>Analysts at Kotak Institutional Equities noted that IT companies extended their outlook for weak demand and macro uncertainty, leading to a reset of both growth and margin expectations for FY2025. This reset has resulted in muted growth guidance for all and a weaker margin outlook for select companies. Recovery hopes have been pushed back to FY2026.</p>
<h2><strong>Tier-II See Better Revenue Growth but Not Margins</strong></h2>
<p>Median revenue growth for the IT sector (Tier-I + Tier-II) came in at 0.7% sequentially in constant currency terms, although Tier-2 companies continued to outpace Tier-1 names. Tier-2 companies reported a median constant currency growth of 2.1% sequentially, while Tier-1 revenue growth came in at negative 0.6% sequentially.</p>
<p>A modest revenue growth was expected in 4QFY24, with the exception of Infosys. The increase in large/mega deals and the reversal of furloughs were key drivers of growth, while the discretionary spending environment remained muted.</p>
<p>TCS led Tier-1 IT with sequential growth of 1.1%. HCL Technologies' services business grew 3% sequentially, but overall growth was impacted by product seasonality. Revenues declined for Infosys, Wipro, and Tech Mahindra, highlighted analysts at Kotak.</p>
<p>Thanks to their effective cost-optimization programs, Tata Consultancy Services and Wipro fared better on margin improvement, said analysts at Kotak. They added that the margin outlook was reduced for mid-tier companies such as L&T Technology Services and Persistent Systems due to aggressive investments to capture market share.</p>
<h3><strong>Conclusion</strong></h3>
<p>The Nifty IT Index's recent rebound offers some relief to investors, but the overall outlook remains cautious. Analysts suggest that while there are pockets of growth, the broader sector faces challenges due to macroeconomic uncertainties and muted demand. Investors should stay informed and consider expert advice before making any investment decisions.</p>