Up 60% in 6 months: Nifty IT index outperforms benchmarks; HDFC Securities lists top picks

Updated : November 24, 2020 12:39 PM IST

A second COVID wave is likely to translate into a flattish demand curve instead of a double-dip, says the report.

On a year-to-date basis as well, the Nifty IT index has risen 41 percent as compared to a 7 percent rise in Nifty.

Among stocks, all constituents of the Nifty IT index also delivered positive returns with L&T Info leading, up 95 percent.

The IT index has outperformed benchmarks in the last six months with the Nifty IT rising nearly 60 percent in this period. In a recent report, HDFC Securities noted that the outperformance in technology stocks is led by a sharp spike in demand trajectory, significant operational improvement, continuity in market share gains and industry tailwinds of an accelerated dollar.

However, the brokerage firm also noted macro risks such as second-wave/lockdown have increased, but that’s likely to translate into a flattish demand curve instead of a double-dip.

On a year-to-date basis as well, the Nifty IT index has risen 41 percent as compared to a 7 percent rise in Nifty. Among stocks, all constituents of the Nifty IT index also delivered positive returns with L&T Info leading, up 95 percent.

Mindtree, Info Edge, Infosys, Coforge were up over 50 percent each while HCL Tech, Wipro, Mphasis, TCS and Tech Mahindra added 15-50 percent.

Most IT firms reported strong sequential revenue performance in the September quarter. This was led by a reversal in supply-side factors, BFSI revenue growth outperforming by 300 bps YoY, and strong growth in Retail, Life-science and Healthcare verticals, stated HDFC Securities.

Margins also peaked in Q2 and the brokerage expects it to moderate as wage hikes are rolled-out.

The IT sector revenue growth in dollar terms is estimated at 11 percent and 9.5 percent over FY22 and FY23, respectively, said the brokerage. It believes that the risk-reward profile for tier-1 IT (versus mid-tier) is more favourable now, following strong outperformance of mid-tier in 3 months and 6-month basis.

The brokerage maintains a constructive view on the sector and prefers picks in tier-1 include HCL Tech and Infosys and mid-tier include Mphasis and Persistent.

Up 60% in 6 months: Nifty IT index outperforms benchmarks; HDFC Securities lists top picks

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