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Large Indian IT service providers’ stocks are poised for a further run-up after a recent rally, bucking the weak sentiment in other sectors as Donald Trump’s return generates expectations of a stronger dollar and greater tech outsourcing.
A benchmark gauge of the industry, led by India’s IT export stalwarts like Infosys Ltd. and Tata Consultancy Services, has risen about 7% in November, outperforming other sectors in the country. It’s also outpacing competitors elsewhere in the region, with MSCI Asia Pacific Information Technology Index falling about 3% this month.
Demand from overseas clients continues to improve and Trump’s plans to cut corporate taxes bode well for US technology spending, Sunil Kaul, a strategist at Goldman Sachs Group Inc., said. A stronger dollar also is a boon for exporters as they earn in the greenback.
The sector is providing an outlet for India investors who are rattled by weak earnings in other industries and foreign outflows that have gathered pace, totaling about $12 billion since the start of October. The stock moves also reflect exporters’ shifting fortunes caused by President-elect Trump’s early policy indicators, including vows to raise tariffs for goods manufacturers.
“IT stocks are candidates for possible earnings upgrades,” Kaul said, adding the dollar’s strength will further boost Indian IT companies’ profits. “Service exports are likely to be immune to Trump’s tariffs.”
A cyclical domestic slowdown in other sectors in India is underway, and it makes sense for investors to look at exporters’ stocks, he said. Goldman Sachs recently upgraded its view on the sector to overweight.
The benchmark Nifty 50 is down more than 7% so far this quarter. But IT stocks including HCL Technologies Ltd. and Wipro Ltd. have gained. Last month, Infosys raised its annual sales forecast for the second time this year, suggesting clients are likely to revive spending on software services.
Seasonal trends are also supportive for IT stocks in their momentum, according to a note by Bharat Arora and other analysts at Ambit. “On a quarterly basis, the fourth quarter of a calendar year delivers highest returns,” they wrote.
Since 2000, the IT gauge has climbed about 10% on average in the last quarter of the year, according to data compiled by Bloomberg.
The start of the Federal Reserve’s interest rate-cut cycle also may be a boost for the industry, Ambit’s analysts said. “Twelve-month forward returns have been positive in three of four previous instances,” they wrote. “Outperformance can continue.”
