The Indian IT sector has had a rollercoaster ride over the last few years. Between March 2020 and January 2022, the Nifty IT Index saw a near 260% climb from around 11,000 to an astonishing 39,000. That massive bull run changed fortunes for many investors who invested in this sector. As with all things in the market, though, what goes up must come down.
Cycle of Bull and Bear Runs
As after garnering such high points, Nifty IT Index was subject to a bear run in between January and July 2022, losing about 33% in the space of six months. In this cycle, an important lesson to investors is that each bull run is usually accompanied by a bear run. While they cannot predict their time period, these are inevitable happenings in market movements.
This IT Index of Nifty subsequently fell into an almost 18 months consolidation and was oscillating between the marks of 26,000 to 31,000. Later there came another mini bull run between November 2023 and November 2024, giving nearly 40% profit. Knowledge of these phases makes the investor sail across the turbulent waters of investments in the IT sector.
Important Takeaways for Investors
Stay Calm During Downturns: During a bear run, panic selling can cost you an opportunity. This is a situation one needs to hold on and look for the downturn.
Welcome Volatility: Equity investment is by its very nature volatile. You know if you can't take the ups and downs well then this probably isn't going to be the investment choice for you.
Status of IT Now
And ahead, we hear the leadership in the IT sector, which is essential. Indicative of where the sector heads towards is the top three companies TCS, Infosys, and HCL Technologies.
TCS: Stable Amid Changes
TCS just declared an EPS growth of 12.6% from FY23 to FY24. This, in turn, implies the company has recorded slower revenue growth when compared with those achieved in previous few years; however it does bounce back to 5.5% growth seen for the last quarter. As reported, total contract values constitute approximately $8bn; the growth was seen within the same numbers of value and, thus has also stabilized. That means TCS is well prepared for future expansion as the pipeline is looking healthy in all regions and sectors.
Infosys: Hopeful Future
Infosys had a meager revenue growth of 3.1%, but their chief executive officer is expecting an upside in discretionary spending in financial services. Given this buoyancy and increasing utilization rate, there is hope on Infosys's future performance.
HCL Technologies: Consistent Performance
HCL Tech has shown a significant EPS growth at 88.4% in four years. Its contract value is stable and, on average, $2 billion over all those years. This contract value stability indicates that HCL Tech can also take advantage of the future opportunities.
Future Prospect of IT Sector
The future of the IT sector would be what? Nobody could predict it for sure. But there are two important macro factors at play:
The financial sector of the United States: The US banking and financial services industries hold key revenues for Indian IT enterprises. It is gaining on and investing more in the application of technology, thus significant potential growth for Indian IT enterprises.
Macroeconomic Factor: Fed rate cuts recently may make banks more likely to spend on technology projects. TCS and Infosys management insights report that cuts in the rates often trigger increased spending in technology and that advantage is likely to continue for IT segment.
Gartner reports indicate that IT spending worldwide would grow at 10% CAGR in the next five years. That alone is a good reason to see growth in the IT industry.
Caution in Valuation
Although the growth potential is there, the Nifty IT P/E ratio is a bit on the higher side at 34.3. So, even though optimism may be booming, caution needs to be taken. Waiting for the right opportunity or buying on dips may be a better decision rather than jumping into investments.
Conclusion
The IT sector's journey is an exciting cycle of bull runs, bear runs, and consolidation phases. It's time that the investors keep pace with this evolution and change in strategies based on the scenario. Knowledge about macroeconomic factors along with leading companies in the sector helps navigate the complexities of the IT market. After all, equity investing does involve risks, and due research has to be made before coming to any conclusions.