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IT index up 27% in 2020: Here's why brokerages see the upward trend to continue

IT index up 27% in 2020: Here's why brokerages see the upward trend to continue

IT index up 27% in 2020: Here's why brokerages see the upward trend to continue
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By Pranati Deva  Sept 29, 2020 2:48:52 PM IST (Updated)

The IT index has been on a high in 2020, rising over 27 percent as compared to a decline of 8 percent in 2020.

The IT index has been on a high in 2020, rising over 27 percent as compared to a decline of 8 percent in benchmark Nifty in the same period. Nifty IT also rose over 1 percent in intra-day deals on Tuesday even as Indian shares traded flat amid a strong dollar buoyed by the hopes of a new stimulus package in the US.

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House Democrats are reportedly putting together a new coronavirus stimulus plan that would cost about $2.4 trillion to support the economy amid the pandemic.
On intraday-deals, Mindtree surged over 5 percent while TCS, Wipro and Infosys rose between 2 percent and 3 percent.
Meanwhile, on a year-to-date basis, all except 1 stock, gave positive returns led by Mindtree, which was up 69 percent. Meanwhile, Tata Elxsi, Coforge, HCL Tech, Hexaware, Infosys, and Wipro rose between 28 percent and 55 percent in this period.
The sector continued its outperformance this year on the back of healthy deal wins, strong deal pipeline and decent revenue guidance for the coming quarters.
Brokerages see the upward trend continuing in the IT space. Brokerage House Jefferies, in a recent report, mentioned that tech spending is becoming more core to the business and expanding the scope for IT services.
The brokerage was mentioning takeaways from a call with Vikash Jain, MD and Partner, BCG.
While it expects some demand compression in the wake of COVID-19, digital spending is likely to accelerate with rising acceptance of Cloud and offshoring, Jefferies said.
It also believes that the cloud is net positive for IT services and expects Indian IT firms to continue gaining market share, led by their entrepreneurial spirit.
"Mr Jain highlighted that Indian IT firms are likely to continue gaining market share, albeit at a slower pace, owing to their higher base. This would be driven by the high level of agility and entrepreneurship exhibited by them to adapt to the changing market dynamics. Indian IT firms with strong downstream capabilities continue to find a good share of deal volumes. In the medium to long term, Indian companies will need to adapt to changing technologies. This is particularly crucial given growing competition as players try to capture more of the tech value chain.," the report explained.
Meanwhile, Edelweiss Securities also believes that the COVID-19 pandemic has accelerated the demand for hi-tech by shriveling human activity into a world of apps. The explosion in online activity has galvanised massive cloud-led adoption, digital adoption and transformation of the core, it added.
It also noted that the Indian technology companies are trading at massive discounts of 20–60 percent to their fair values and 50 percent to global peers and that this anomaly is likely to correct over two-three years.
The brokerage prefers four large-caps (HCL Tech, Infosys, TCS and Tech M in that order), three mid-caps (Mindtree, L&T Tech and L&T Infotech) and
three small caps (Eclerx, Cyient and Persistent).
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