IT stocks: Sector rotation, demand recovery hopes may support; Infosys, Wipro, Cyient among Emkay Global’s top picks

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Wipro, Infosys, Tech Mahindra, Coforge, Persistent Systems and LTIMindtree shares that gained over 3-4% each. The index showed a significant outperformance over broader indices.Gains in IT stocks came on the back of portfolio shift after the election outcome, increased hopes of interest rate cut by the US Federal Reserve, particularly after the rate cut announcements by Bank of Canada and European Central Bank (ECB) and relative valuation, analysts said.The CME’s FedWatch tool, based on futures prices, puts around 50% odds on at least one rate cut by the Fed’s September meeting.Also Read: Nifty 50 can add 1,200 points in June, says Nirmal Bang; lists 2 technical and 2 fundamental stock picksDipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services believes the start of the interest rate-cut cycle would act as a signaling trigger for clients of Indian IT companies gaining confidence on inflation trajectory and macro stability, which may drive demand recovery and an uptick in discretionary spending.

“Uncertainty around the inflation trajectory weighed on client decision making and revival in discretionary spending, with a full-fledged demand recovery now expected only in CY25/FY26," Mehta said.While the macro uncertainties continue with mixed economic data from the US, the demand environment for the IT companies also remains challenging. However, analysts at Emkay Global believe the near-term material change is unlikely.Also Read: IT sector demand may be muted in short term, but Infosys, TCS, HCL Tech among top buys, say experts“There is no material change in demand in the last few months and the overall environment remains challenging on account of continued macro uncertainties.