Revival in IT stocks likely to continue in new year

economictimes.indiatimes.com:

companies could spill over into the New Year as the US Federal Reserve's signal to cut interest rates in 2024 has partly eased concerns over higher-than-average stock valuations.

While Accenture's latest growth guidance is indicating a subdued near-term outlook for the sector, fund managers and analysts said the US central bank's dovish tilt has reduced the risk of earnings downgrades. The next big trigger for the sector would be signs of deal wins by IT firms, they said.

Since the Fed's latest meeting on December 13, the Nifty IT index has jumped 5.4%; the Nifty 50 gained 1.6% during this period.

Investors have been cautious about the IT sector's prospects on account of the uncertainty over the US economy's outlook.

The US accounts for a lion's share of the revenue for technology companies, particularly tier-2 players, and easing interest rates in the region implies that corporates will now have the headroom to spend more on technology, especially discretionary projects.

«Before the US Fed's decision, the expectation was that companies will be able to see 10-11% growth next year based on the large deal wins which some of these companies can get,» said Mayur Patel, fund manager at 360 One Mutual Fund. «There were, though, risks of recession in the US.

With the US Fed talking about three rate cuts and potentially no recession in the US, it is a soft landing which has significantly relieved the downgrade risk to growth expectations for March 2025.»

TCS, Infosys, HCL Technologies and LTIM rose 3-7% since the Fed meeting. Shares of Persistent Systems, Mphasis, Coforge and L&T Technology Services have risen 4-10%.

While Accenture's revenue growth guidance is among the weakest ever given by the company, its deal wins