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Informist, Friday, Mar. 21, 2025

MUMBAI – Information technology stocks are expected to move in a thin range next week after their sharp rise in the recent sessions. While analysts remain positive on the sector for the medium-to-long term, uncertainty about the the near term is likely to be an overhang on these stocks. In the long term, an uptick in cloud digital transformation and generative artificial intelligence is expected to lead to higher spending on IT, Ambrish Shah, an analyst covering the sector at Systematix Institutional Equities, said. 

Over the week the Nifty IT index rose 1.6%, with all constituents barring Tech Mahindra ending in the green. Mid-cap IT stocks Mphasis, Coforge, and L&T Technologies saw the highest rise over the week in the range of 6.2-10.2%, while large-caps Infosys and Wipro rose marginally.

The Nifty IT index is expected to hover around 35000-40000 points in the near term, Amit Chandra, an analyst covering the sector at HDFC Securities, said. He expects IT stocks to move sideways hereon as he does not see much room for a fall in the stocks following the correction for the third consecutive month now. Brijesh Ail, head of technical and derivatives at IDBI Capital Markets and Securities, see the IT index finding support at 35000 points and resistance at around 38000 points.

Analysts' expectation of a pickup in discretionary spending on the IT sector is dampened by comments from the management of global IT giant Accenture on clients turning cautious on IT spends amid rising uncertainty in the macroeconomic environment. This uncertainty has taken a hit on the budgeting of most US-based companies, which usually takes place in Jan-Apr, shifting the recovery cycle of discretionary spending by one or two quarters, according to analysts. "...post the imposition of the US tariffs in April, they (companies) will evaluate how inflation is and how things change in the US...post that they will take a decision (on discretionary spending)," Chandra of HDFC Securities said.

This slowdown in spending is expected to impact revenues of Indian IT companies in the first half of 2025-26 (Apr-Mar) as they get majority of their revenue from the US. Overall, analysts expect Indian IT companies to report flat revenue growth this year. Shah expects the sector to report slightly positive earnings, but with no significant growth in revenenue for most companies.

Though brokerage firm Nomura agrees that the recovery of discretionary demand may take a few more quarters, it believes that the trend is unlikely to worsen significantly unless there is a very sharp deterioration in the macroeconomic situation. While macroeconomic risks have increased, the absence of exposure to US federal government contracts puts Indian IT companies in a better situation over Accenture, Nomura said. On Thursday, US-based player Accenture said that its federal business is under pressure as federal agencies have been asked to review contracts with top 10 highest-paid consulting firms. However, Accenture gaining market share on managed services to offset softness in the federal business will likely impact Indian IT companies, according to analysts. 

Accenture has raised the lower end of its revenue growth guidance for 2024-25 (Sept-Aug) to 5-7% instead of 4-7% earlier, but this was slightly lower than the expectation of a 5.7% growth. Analysts expect Indian counterparts Infosys and HCL Technologies to give conservative revenue growth guidance for FY26. The March quarter earnings of Infosys and its revenue growth guidance will provide a much better picture of how growth is panning out, Chandra said.    

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Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

US$1 = INR 85.97

Reported by Arya S. Biju

Edited by Tanima Banerjee

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