TCS, Infy & others get chip push to rally up to 5%
On Friday, Indian IT companies saw a significant surge in their shares, with major players like LTIMindtree, TCS, HCLTech, and Infosys leading the market gains. The Nifty IT index experienced a more than 3% increase. LTIMindtree shares jumped around 5%, while HCLTech and TCS gained approximately 4% each. Coforge, Tech Mahindra, Persistent Systems, Infosys, and OFSS rose by around 3% each, with Wipro and Mphasis gaining 2%.
This sharp rise in IT stocks came after their Wall Street counterparts rallied due to Nvidia's strong earnings. Nvidia shares jumped 9% after reporting second-quarter revenue of $96.2 billion, up 106% from a year earlier, surpassing Wall Street estimates. The company also forecasted revenue of about $108 billion for the current quarter, exceeding analyst expectations.
The positive results reassured investors about the global AI boom, leading to a broader rise in technology stocks, according to Devarsh Vakil, head of prime research at HDFC Securities. Investors are now anticipating comments from US Federal Reserve Chair Kevin Warsh, scheduled for later in the day at the Jackson Hole Symposium.
The IT stocks have experienced sharp fluctuations recently, with a notable sell-off earlier this year following breakthroughs by AI startups, which raised concerns about potential disruption to the traditional IT services business model. However, a sharp sell-off in global tech leaders later proved to be beneficial for Indian IT stocks, which remained resilient amid the global tech downturn.
HSBC believes India can act as an "anti-AI" diversifier, as sharp swings in technology-exposed markets encourage foreign investors to diversify their portfolios. Despite ongoing AI jitters, CLSA downgraded several heavyweight stocks and revised their target prices, while maintaining a bullish outlook on several mid-tier IT vendors.
CLSA emphasized that Q1 earnings were mixed for Indian IT companies and their global peers, with a potential long-term growth in AI volumes by FY30, boosting US dollar revenue growth to low to mid-single digits. As a result, CLSA downgraded the rating of TCS, Infosys, and Tech Mahindra to 'Hold', while Wipro and Mphasis were downgraded to 'Underperform' due to structural concerns.
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