The outlook for the tech sector looks bullish owing to a weak rupee.
New Delhi: IT stocks outperformed the benchmark index Sensex in April driven by the sharp jump in TCS, and going forward the outlook for the tech sector looks bullish owing to a weak rupee and increasing adoption of digital platforms.
On BSE, the IT index ended the month of April with 10.71 per cent gain, while for the 30-share index the gain was 6.64 per cent. S&P BSE Information Technology index was quoted at 13,567.69 on April 30, significantly higher than its April 2 value of 12,254.92 points.
The latest gains were led by Tata Consultancy Services (TCS) whose shares marked new heights during April. Shares of TCS - the most valued company of the country - jumped as much as 24 per cent and also scaled the USD 100 billion landmark market capitalisation mark during the month. Other blue-chip IT companies also ended the month on a strong note.
Infosys, India's second largest software services firm soared 5.72 per cent, HCL Technologies (8.44 per cent), Tech Mahindra (5.20 per cent). IT stocks have the second biggest sectoral weight in the benchmark indices, after banking. The strong performance of tech stocks during April helped Sensex gain 6.64 per cent during the month.
Given that the weak rupee augurs well for the IT pack, brokerages are upbeat on the IT sector. According to a Nomura report, the rupee has started to depreciate since the start of 2018 by near 4 per cent so far this year.
"IT has already materially outperformed Nifty in this period of rupee depreciation," Nomura said adding that "theoretically, companies with lower margin profiles and higher offshore components are likely to benefit from rupee depreciation".
Edelweiss Research in a note on IT earnings said: "Our analysis reveals that with acceleration in revenue and digital gaining scale, double digit earnings growth will soon become a reality". It further said: "We reiterate our structural bullish call on sector led by falling proportion of low-growth business being replaced by high-growth digital business".
Meanwhile, Elara Capital in a report said large-scale mutual fund allocations moved into the financial sector post 2014 while MF ownership in IT remains closer to two-decade low.
"Now the AUM ratio has reached close to 2008 highs from where reversal has begun. Any large reversals will significantly benefit IT, which remains the largest under-allocated sector among local MF. In the past, reversal from such high zone has brought about a big round of outperformance in IT," Elara Capital said.