Fu­elled by TCS’ Buy­back Move, IT Bounce may be Here to Stay

The Economic Times - - Smart - Mar­ket In­tel­li­gence

Mum­bai: The ascent in the Nifty IT in­dex post the TCS de­ci­sion to buy back­sharescould­bethe­be­gin­ningof a re­ver­sal in trend for tech­nol­ogy stocks, at least in the near term, said fund man­agers and an­a­lysts. The Nifty IT in­dex spiked 1.37% on Mon­day af­ter gain­ing 2.1% last week. TCS’ share buy­back an­nounce­ment dur­ing trad­ing hours drove up its shares by 4.1% to ₹ 2506.50 on Mon­day. The op­ti­mism rubbed off on peer In­fosys too, which closed 1.2% higher on hopes the firm would em­u­late its big­ger coun­ter­part.

An­a­lysts said share buy­back is in­tended to re­in­state in­vestor con­fi­dence, which was hit due to con­cerns over tight­en­ing visa norms in the US and growth slow­down in the sec­tor.

“Given that the noise sur­round­ing H-1B norms has been largely priced into IT stocks and the sur­prise el­e­ment is es­sen­tially over, the risk-re­ward ra­tio at this point may be at­trac­tive for in­vestors,” said Dhi­raj Sachdev, fund man­ager at HSBC Global As­set Man­age­ment. Talk of Don­ald Trump’s pro­tec­tion­ist poli­cies not­with­stand­ing, Nifty IT has risen 6.62% since Novem­ber 9 when he won the US pres­i­den­tial elec­tion. The Nifty has gained 3.8% in the same pe­riod. An en­cour­ag­ing en­vi­ron­ment in the US bank­ing in­dus­try with lower reg­u­la­tions and pick up in IT-re­lated spend­ing has led some an­a­lysts to turn bullish on IT stocks. An­a­lysts said up to 45% of In­dian IT rev­enue comes from fi­nan­cial ser­vices.

“We have been pos­i­tive on the IT sec­tor and since Jan­uary we have tur ned over­weight on it,” said Ab­hay Lai­jawala, head of In­dia re­search at Deutsche Eq­ui­ties.

He said his ar­gu­ment is premised on a steep­en­ing yield curve in de­vel­oped mar­kets and net in­ter­est mar­gins that are set to re­turn.

“Au­toma­tion is in­deed a valid con­cern but it may be pre­ma­ture to say that it would be to­tally dis­rup­tive. In­dus­try is adapt­ing to au­toma­tion and ar­ti­fi­cial in­tel­li­gence as form of ser­vices,” said Sachdev of HSBC.

An­a­lysts said share buy­back is in­tended to re­in­state in­vestor con­fi­dence


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