What's driving the rally in IT stocks? Abhishek Kumar answers
«The demand commentary that we hear from most of the companies is that things are stabilising. There are green shoots, especially in banking and BFSI generally is a lead indicator for the broad-based recovery in the sector,» says Abhishek Kumar, JM Financial Institutional Securities.
Could you just give us a gist of what has actually been driving this kind of a rally that we are seeing in the IT Index because the EPS upgrades are not that much to support this kind of rally?
Abhishek Kumar: You are right, earning upgrades have not come through yet but if we look at the last few quarters, there were earning downgrades consistently and that seems to have stopped, so that is kind of a first milestone in inflection. So, the worst seems to be behind the sector.
The demand commentary that we hear from most of the companies is that things are stabilising. There are green shoots, especially in banking and BFSI generally is a lead indicator for the broad-based recovery in the sector.
And with rate cut on the anvil in US, some of the levered sector like telecom, manufacturing, etc, can also start opening up come FY26. So, with these kind of anticipations, I think it is logical that investors will take position and that is essentially driving the multiples up in the hope that earning upgrades will come through in due course of time.
But do you think the investors are being too ahead of the curve here because if you look at the valuations, they are still above or equal to the five-year, two-year averages that we have seen.
