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Wednesday, October 4, 2023

A $46 billion rally shows India’s tech woes easing

NEW DELHI: Optimism is returning for Indian information technology companies, as lowering the odds of a US recession and the emergence of artificial intelligence as a potential new source of revenue fuel a rally in their shares.
He NSE Nifty IT Index It’s up 18% from an April low, adding about $46 billion in market value. The 10-member gauge sent the rally up a notch in July and is on track to outperform the MSCI World Information Technology Index for the first time in seven months.
Profits rebounded after Asia’s biggest exporter of software services, Tata Consultancy Services Ltd., last week reported better-than-expected earnings for the latest quarter. His stock rose, along with those of his peers, including infosys Ltd., which is scheduled to report today.
The rally in tech stocks has put them back on track with the broader rally in Indian stocks as investors target sectors that have lagged behind and are available at cheaper valuations. The Nifty IT indicator is trading at about 23 times estimated earnings for the next 12 months, up from 20 times in April, but still below its all-time high of 32 times.
While TCS He said some customers are holding off on spending, the pace of earnings helped allay concerns about the impact of the economic slowdown on global customers that plagued the industry earlier this year. The company and its peers who have already reported also provided reassurance about profitable deals in automation and other emerging technologies.
“The flavor of the quarter was generative AI,” Tata Consultancy CEO K. Krithivasan said on the company’s earnings call last week. “In every conversation I’ve had with customers over the past three months, this has inevitably come up.”
The new optimism marks a shift from just a few months ago, when Infosys warned against clients in key sectors such as financials pulling back amid fears of a recession in the US and Europe, the biggest markets for Indian IT companies. Instability in the global banking system following the collapse of Silicon Valley Bank compounded those concerns.
The sell-off by software exporters earlier in the year was due to lower volumes of discretionary projects in the US, but performance in the June quarter was not as bad as feared, said Patricia Urbano, a Paris-based fund manager at Edmond de Rothschild. AI could be better for the industry than expected, she added.
earnings in Wipro Ltd actually came in slightly below consensus estimates, but margins were considered stable and the company announced a $1 billion plan to boost its AI business. However, concerns are not completely out of the way for the sector, as evidenced by an increase in the short positioning of Infosys shares ahead of its results.
While the estimated 12-month forward earnings for the Nifty IT Index have fallen this month to around Rs 1,350 per share, they remain above April’s low of around Rs 1,330 per share and 1,270 earlier in the year. The industry’s strong profitability and efforts to reward shareholders have helped attract investors back.
Software exporters are “returning capital to investors with lots of dividends and buybacks,” according to Mark Matthews, head of Asia-Pacific research at Bank Julius Baer & Co. “It was a good correction going into the space.”

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