Where are IT stocks headed? Nasdaq trajectory has a story to tell
recovery. The Nifty IT index, which had declined by 14 percent between April 1, 2022, and August 31, 2023, has shown signs of improvement since September 1, 2023, with a 4.11 percent increase.
One critical factor in this recovery is the reduction in attrition rates reported by IT companies during Q1FY24, signifying improved knowledge retention and cost savings from reduced employee turnover.
Furthermore, major Indian IT firms have secured multi-billion dollar IT services deals in recent months, bolstering their revenue prospects for the remainder of the year.
As we enter the second half of the year, several factors shed light on why the Indian IT sector is displaying signs of reversal and the potential beginning of a rally.
Let us have a look at some of these factors.
A significant drop in US CPI Inflation may result in heightened interest in IT services, as businesses become more inclined to invest in technology and digital transformation endeavors. Consequently, this could contribute to improved profit margins for leading Indian IT companies.
The below chart illustrates a decade-long analysis of Nifty IT, showcasing a comparison between its returns in the first six months and the latter half of each calendar year.
The IT index exhibited superior performance during the latter half in 7 out of 10 years. The average return in the first half of a calendar year from 2013 to 2022 is 3% and in the second half is 17%.
The question arises: will this trend persist in the second half of the calendar year 2023?
The following chart depicts the performance of the Nifty IT index and the Nasdaq 100 index up to the present moment.
