Information technology (IT) stocks have regained steam amid rising interest rate cut bets from global central banks and the booming artificial intelligence (AI) opportunities relevant to the sector.
The Nifty IT index has gained 3.2 per cent this week after US Federal Reserve Chair Jerome Powell signalled a rate cut at the central bank’s September meeting.
IT companies earn a significant share of their revenue from the US and are likely to benefit from a September rate cut. IT company LTIMindtree rose 6.54 per cent, most among IT stocks and also on the Nifty 50, after Kotak Institutional Equities upgraded it to “add” from “reduce”.
According to domestic brokerage firm Prabhudas Lilladher, The near-term demand environment kept the large caps’ performance and outlook under pressure, which recently joined by mid-cap IT stocks with notable volatility in their operating performance. However, the outlook for the mid-cap names remains strong for the rest of FY25, which are trading at a premium of ~5% compared to large caps (Exhibit 1). We believe, as macro recovery gathers pace and spending sentiment improves, mid-/small-cap IT outsourcing providers continue to benefit through (1) the niche and deep expertise developed within key verticals along with execution agility and flexibility; (2) participation in vendor consolidation and winning disproportionately over large caps; and (3) enterprise deal sizes become more fragmented and benefiting mid-caps vs one-shot large mega deal awarding to a single large vendor, in a bid to de-risk vendor dependency; With that, we initiate coverage on Cyient, Persistent and Mphasis.
