Nifty IT outperforms frontline index despite global slowdown 2024: What to expect in 2025?
During the global economic downturn, the IT (Information Technology) sector has registered slow growth in the calendar year 2024. Still, the Nifty IT as a whole has delivered a respectable return of around 23 per cent year to date compared to the Nifty’s return of just over 9 cents over the same period.
The reduction in prices increases the opportunities for the IT sector
Especially after the US Federal Bank turned to lowering rates amid a better economic climate, IT companies in India enjoyed a better position. Ideally the Fed’s monetary easing cycle or a low interest rate environment that reflects low operating costs and high profits gives corporate America a boost, driving its desire to use technology. This has had a positive impact on the demand for Indian IT service providers.
In today’s trading session, IT stocks showed higher volatility, with sector heavyweight TCS leading the way down despite a positive market opening. Weakness in IT stocks can be attributed to a number of headwinds, including a strengthening dollar and higher US bond yields, which tend to impact the sector’s earnings outlook.
A vision for the IT industry to 2025
HDFC Securities maintains a ‘neutral’ stance on the sector and said a gradual recovery in demand is underway led by the BFSI segment as the deal for profit reform progresses. Also, it added that deal bookings were healthy as customer sentiment remained positive with a focus on AI, digital migration and cloud.
On the same lines, G Chokkalingam- Founder, Equinomics is not very optimistic about the big IT Stocks in 2025. Possible hedging measures from the new US President, a delay in rate cuts and continued negative single-digit growth in dollar terms could act as a drag at least. in the first half of CY2025, he added.
Poor growth of the IT industry may result in consolidation in the industry. So he recommends IT companies like Cyient.
Deepak Ramaraju, Senior Fund Manager, Shriram AMC said IT, which has already bounced back from its slump after the rate cut, could do well in 2025 as discretionary spending picks up, provided Trump does not impose surprise tariffs.
The brokerage also expects average youth income growth in FY26 on the back of single-digit revenue growth, but as valuations remain rich, gains are likely to be limited, HDFC Securities added.
Atul Parakh, CEO of Bigul said, “The performance of the sector will likely be in line with global factors, especially any signs of a possible rate cut.”
The muted post-Christmas trading activity suggests investors should adopt a wait-and-see approach, balancing the sector’s strong fundamentals with current market uncertainty and the implications of the upcoming Union budget, he added.
The rupee’s historic fall has added another layer of complexity to the sector’s performance, as currency depreciation generally benefits IT companies’ profits but may raise concerns about broader economic stability, noted Atul Parakh, CEO of Bigul.
What does technology suggest for IT stocks?
Jigar S. Patel, Sr. Manager- Equity Research said, “Currently, the Nifty IT has established a negative divergence on the weekly MACD, indicating the persistence of bullish momentum despite recent gains. A negative divergence occurs when the price makes a higher high while the indicator is building low elevation, suggesting a possible modification or adjustment”
Given this setup, we expect a significant correction of 4000-5000 points in the first half of 2025. These expectations are in line with the broader technical structure, where momentum oscillators are losing momentum and market sentiment appears to be changing, he added.
Patel pointed out that traders and investors should remain vigilant, especially near resistance levels, and focus on risk management. The strategy will involve waiting for clear support points before re-entering long positions in the IT sector.
