IT gives bears a bull hug: what is driving the rally in tech stocks?

economictimes.indiatimes.com:

At first glance, of course, the demonstration of investor confidence in a hitherto neglected investment pocket, which makes up nearly a sixth of the weighting on the Nifty, appears difficult to square with performance in the immediate past. Business growth has remained muted for most IT majors in the third quarter owing to multiple headwinds related to uncertainty in decision-making, deferred discretionary and technology spends, US recession concerns, and geopolitical tensions.

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Hence, the sentiment for Q4 is far from cheerful. And yet, the market is forgiving. Almost all IT stocks (excluding Infosys and Wipro) outperformed broader markets (Nifty-50 and Nifty-500) in calendar year 2023. Both Nifty IT and BSE IT indices have surged around 24% in the calendar year 2023.

“Call it happenstance or design, the IT sector today is at the same crossroads it was at exactly two years ago. The only difference being it is exactly the mirror image of CY22,” according to a report by Nuvama Institutional Equities. Back in 2022, interest rates were at an all-time low with rate cuts triggered by Covid19 induced lockdowns that spurred multi-decade high inflation raising expectations of rate hikes by the Federal Reserve, US central bank.

“Following that, the US was forecast to slip into recession— that we have all been waiting for!” In anticipation, investors expected lower growth leading to a sharp correction in valuation across the IT sector.

“Almost all stocks