It's Start Of Upgrade Cycle For IT Stocks, Says Sowlio Investment's Agarwal
There's likely to be 8-10% valuation left from IT stocks, according to Sandip Agarwal, co-founder and fund manager Sowlio Investment Manager.
The sharp rebound of information technology stocks on Friday may signal the start of an upgrade cycle in the coming future, said Sandip Agarwal, co-founder and fund manager, Sowlio Investment Manager.
There is 8-10% valuation left from IT stocks, according to him. "One should not expect more from that because these stocks have already run-up 10-12% from the last quarter, and other 4-5% today," he said.
In Agarwal's view, IT stocks made a bottom somewhere in the last quarter only. Markets will see another two-three quarters' run-up, he said. By the time conviction comes to everyone, smart investors would have made 20-25%, he said in an interview to NDTV Profit.
Constituent of NSE Nifty IT index added nearly Rs 2 lakh crore to investors' wealth on Friday, after the sectoral index rose to its highest level in over two years. The index rose after Tata Consultancy Services Ltd. reported a net profit for April–June in line with estimates, and the US Consumer Price Index cooled to its slowest pace since 2021, fuelling bets on rate cuts in the US.
At 2:45 p.m., IT companies' market cap on the NSE grew by Rs 1.73 lakh crore to Rs 34.57 lakh crore. Intraday, the market cap of Nifty IT companies rose to Rs 34.67 lakh crore.
The software-technology giant's net profit declined 3.2% sequentially to Rs 12,105 crore, but beat Bloomberg's estimate of Rs 11,959 crore.
Adding to this, US CPI recorded its first sequential fall since May 2020. The index fell to 0.1% sequentially in June, same as the Bloomberg estimate. The core CPI print rose 0.1% month-on-month, as against the Bloomberg estimate of 0.2%.
"...Expect positive sentiment in the domestic market after IT major TCS announced impressive Q1 results," said Vikas Jain, senior research analyst, Reliance Securities. "Cooler-than-expected US inflation has dropped to a one-year low, raising hopes that the US Fed may cut interest rates. This has led to a sharp decline in the US 10-year bond yield to a one-month low of 4.18%."
The Fed fund futures traders are factoring in an 86.4% chance for a 25 basis points rate cute in the Federal Open Market Committee's September policy meeting, as compared to a 69.71% possibility on Thursday. The current federal fund target rate is 5.25–5.50%.
Indian IT companies conduct substantial business with US clients; hence, hopes of monetary easing in America raise their revenue outlook.
The Nifty IT index surged 5.10% to 39,237.70, the highest level since Jan. 4, 2022. It was trading 4.91% higher at 39,164.10 as of 2:48 p.m., as compared to a 0.66% advance in the NSE Nifty 50.
Mphasis Ltd. was leading among other IT stocks, with 5.85% intraday gains. Coforge Ltd. and TCS followed with 5.68% and 4.43% gains, respectively.
Tech Mahindra Ltd. rose the least as compared to other peers and was trading 2.77% higher. However, the stock surged to its highest level since April 5, 2022.
