28 Nov , 2024 By : Debdeep Gupta
The Nifty IT index fell over 1 percent on November 28, becoming the biggest laggard on the Nifty 50 after U.S. inflation data revealed an increase in consumer spending for October. The data raised concerns that the pace of future rate cuts may be slower than expected, potentially affecting sectors like information technology, which have significant exposure to the U.S. market.
Data showed a strong rise in consumer spending in October, indicating that the U.S. economy sustained its robust growth, though efforts to reduce inflation seemed to have stalled. Consumer spending rose 0.4 percent in October, surpassing the expected 0.3 percent gain, following a revised 0.6 percent increase in September.
At 10:15 AM, the Nifty IT index was down 1 percent, at 43,630, with all 10 constituent stocks falling between 0.3 percent and 1.3 percent. After a 2 percent drop in September and a 4 percent decline in October, Indian IT stocks had rebounded by nearly 8 percent in November, boosted by the news of U.S. President-elect Donald Trump's return to the White House.
In a note released on November 27, brokerage Bernstein maintained its positive outlook, forecasting the beginning of an up-cycle as growth recovers. It cited strength in the BFSI sector and the growing scale of AI deals within the IT services industry. Bernstein expects FY26 to be a normalized year, following growth trends from the second half of FY25. The firm believes that strong order books and reduced leakages will drive growth.
Bernstein remains bullish on select large-cap stocks like Infosys and TCS, which have 50-60 percent exposure to the U.S. and a BFSI mix of about 30 percent. These companies are seen as having stronger customer relationships and better margin resilience.
In the small and mid-cap space, Bernstein prefers Persistent Systems, which has an 80 percent U.S. revenue mix, positioning it well for growth in the high teens in the medium term.
In the recently concluded September quarter, several IT companies raised their revenue guidance, while their margin outlook remained unchanged. Growth was largely driven by the manufacturing and energy & utilities sectors, with the BFSI vertical showing early signs of recovery.
However, the absence of mega deals in FY25 led to a 0.4 percent year-on-year decline in total contract value (TCV) reported by the top five IT firms in H1, according to JM Financial analysts. For FY26, they anticipate that growth will depend on a rebound in short-cycle and discretionary deals.
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